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Trump has a new enemy on trade: India

"I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India.”

by David Gilbert
Mar 5 2019, 12:08pm

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Donald Trump threatened Monday to open a fresh trade war with India — over knee implants.

The president announced New Delhi was being removed from a preferential tariff agreement that allows developing countries to export certain goods to the U.S. with zero duty.

Trump said in a letter to Congress that he was removing India from the Generalized System of Preferences (GSP) program because he was unhappy with New Delhi’s response to his efforts to open up the Indian market to U.S. companies.

“I am taking this step because, after intensive engagement between the United States and the Government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India,” Trump said.

However, unlike China, which responded aggressively to Trump’s upending of the trading relationship between Washington and Beijing, Indian officials dismissed Monday’s move by the White House.

“The withdrawal of GSP benefits to India will have a minimal and moderate impact,” Commerce Secretary Anup Wadhawan said at a press conference Tuesday morning.

The official termination of India’s participation in the GSP won’t happen for 60 days, but there is little desire — on either side — to reopen negotiations.

What is the GSP program?

The program, which India has enjoyed since 1976, sets zero tariffs on certain goods from a set of 120 developing countries. The aim is to foster trade and economic development between the U.S. and developing nations.

In India, the GSP accounts for some $5.6 billion of India’s exports to the U.S, making India the largest beneficiary of the program.

India’s top GSP exports to the U.S. in 2017 included motor vehicle parts, ferro alloys, precious metal jewelry, building stone and insulated cables and wires, according to the Confederation of Indian Industry.

Why did the U.S. kill the deal?

Trump has made no secret of his disdain at what he perceives as unfair trade practices, calling India a “tariff king.”

Central to the dispute are farm produce and medical supplies.

The National Milk Producers’ Federation and the U.S. Dairy Export Council have both complained about restricted market access for farm products, while the Advanced Medical Technology Association has raised the issue of price caps on coronary stents and knee implants.

While India did agree to open up the market for a wide array of U.S. farm produce, it would not budge on the medical products, saying it had a responsibility to keep the prices low so its citizens can afford them.

The U.S. was also worried about India’s e-commerce and data localization policies, which New Delhi sees as a sovereignty issue, but Washington views as hindering companies such as Amazon and Walmart, which owns a majority stake in Indian online company Flipkart.

What is India saying?

Wadhawan said the “total GSP benefits amount to about $190 million on overall exports of $5.6 billion between the two countries.” The percentage of Indian exports that fall under the GSP program has dropped from 30 percent in 2012 to just over 10 percent today.

Conversely, U.S. exports to India grew 28 percent in 2018-19, which is two-and-a-half times faster than Indian exports to the U.S.

The official added that while India had made efforts to appease the U.S., it could not accept all of Trump’s demands.

“We had worked out a meaningful package that covered the U.S.' concerns but they made additional requests which were not acceptable at this time,” he said. “The GSP system is envisaged as a non-reciprocal benefit to developing countries.”

He added that India was still reviewing whether it would impose retaliatory tariffs or not.

Cover image: President Donald Trump gestures while speaking during a National Association of Attorneys General event in the State Dining Room of the White House in Washington, D.C., U.S., on Monday, March 4, 2019. (Oliver Contreras/Pool via Bloomberg)