India Joins Retaliation Against Trump Tariffs

India has retaliated to US President Trump’s tariffs on steel with duty hikes on agricultural and steel products imported from US. 

Last month, India launched a complaint at the World Trade Organisation against the United States over the steel and aluminum duties after it failed to win an exemption. 

Background 

The United States has a history of imposing tariffs dating back to the 1700s. In 2002, duties imposed by President Bush were thought to have cost the country 200,000 manufacturing jobs. They were lifted a mere 21 months after their imposition. 

President Trump is known to have a protectionist outlook on trade. On the campaign trail, he promised tariffs against countries such as China, whom he blamed for loss of jobs. He also criticized “bad” trade deals and “unfair trade practices” against America. He stated that other countries were "dumping vast amounts of steel all over the United States, which essentially is killing our steelworkers and steel companies”. 

In March 2018, US President Donald Trump announced his intention to impose tariffs of 25% on imported steel and 10% on imported aluminium “for a long period of time”. The President cited “national security” in order to circumvent WTO commitments. Trump’s administration has cited Section 232 of the Trade Expansion Act of 1962. This section gives the US president the power to impose tariffs if “an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security.” This particular act has not been imposed by the US government since the inception of WTO. 

The US has traditionally enjoyed relatively warm ties with India. Indian Prime Minister Narendra Modi visited America in 2017 after Trump assumed power. In February 2018, Trump praised PM Modi, but added that the US was “getting nothing” from the trading partnership between the two nations. 

Analysis

When India failed to get an exemption from the new steel and aluminium tariffs, they submitted to the WTO a revised list of 30 items on which it proposed to raise customs duties by up to 50%. The import duty on chickpeas and Bengal gram has been increased to 60%, while that on lentils has been hiked to 30%. The other products on which duties have been hiked include certain kinds of nuts, iron and steel products, apples, pears, flat rolled products of stainless steel, other alloy steel, tube and pipe fittings, and screws, bolts and rivets. 

The increased duties is of an equivalent value to those imposed by the US amounting to $241 million. India exports steel and aluminium products worth about USD 1.5 billion to the US every year. 

The new tariffs were intended to show displeasure at the U.S. action according to an official from the Indian steel ministry. Some of the new Indian rates will take effect immediately while the others would go into force on 4th August. 

“It is important that India make greater efforts to lower barriers to trade, including tariff and non-tariff barriers, which will lower prices to consumers, promote development of value chains in India,” said the State Department spokesperson. 

In the past, India had pushed for greater protection of domestic industries, especially those of struggling handloom, cottage and farm industries, but they buckled to WTO pressures. Smaller and poorer countries cannot afford to maintain the representatives and trade lawyers necessary to make their voices heard on policy issues at the WTO headquarters in Geneva. WTO dispute-resolution processes, too, are slanted against such countries, which don't have the resources to defend themselves against complaints by rich countries. Often just the threat of a complaint forces them to settle a dispute in favor of transnational enterprises and against the interests of the majority of their citizens.  For example, the Codex Alimentarius—the set of food-safety standards adopted by the WTO Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures —has been heavily influenced by U.S. agribusiness. Primary sector dependent economies like India struggle to reach SPS measures which affects exports of agricultural commodities. 

Trump Tariffs are isolating the superpower as the EU, Mexico and India have now imposed retaliatory sanctions. Moreover, US imposed sanctions on Russia and Iran has slowed trade, but allows the countries to explore new diplomatic, economic and military ties. Recently, Russia and India have decided to switch from the US dollar to the Rupee and Ruble in order to bypass US sanctions. Markets in emerging economies can be strengthened if EU, Mexico, Canada, Russia, India and others choose them as alternatives to the United States. Such measures will not only affect producers, in technology or agriculture industries, but also force US to reorient their new trade strategy. 

Assessment

Our assessment is that higher import duties by the US will hurt India’s exports and economic growth further pressuring current account at a time when foreign investors are exiting emerging markets stocks and bonds for safer haven assets. We believe that the Trump Administration complaint to the WTO regarding India’s export subsidies will also hurt the trade between the two countries. India’s chief concerns will not be regarding steel and aluminium tariffs, but rather with its bigger exports such as pharmaceuticals and consumer goods.