The protectionist attitude of states can be traced back to the financial crash of 1929. The implementation of the Smoot-Hawley Tariff Act by the United States (“U.S.”) raised the tariffs of over 20,000 imported goods.[1] The 2008 financial crisis drew a similar response from some of the major economies of the world, the U.S. being in the forefront. Thus, there is adequate historic evidence to point towards the protectionist tendencies of some of the most of the advanced economies of the world.[2] Recently, the U.S. has been imposing reciprocal tariffs on countries like India, China and the EU. This is harmful for India as it targets the trade surplus that India has with countries like the U.S. and EU.[3]
The article lays emphasis on India’s trade relationship with the U.S., the U.S.’s trade war with China and the opportunities created for India in this trade spat between the two countries.
The India-U.S. trade equation
The Trump Administration recently imposed reciprocal taxes on both India and China. The first among what proved to be a series of measures was the imposition of 25% and 10% tariff on steel and aluminum respectively.[4] India in response imposed tariffs worth $240 million which took effect from August, 2018. [5] The divergence of India and the U.S. on trade related issues can also be gauged from the row over the tariffs imposed on the Harley Davidson motorcycles. Mr. Trump, has in the past, publicly stated that India’s imposition of 70% tariffs on Harley Davidson was ‘unfair’ considering that the U.S. places no tariff on import of the Royal Enfield.[6] The India-U.S. Solar dispute is another case in point. In September 2016, the Appellate Body of the WTO ruled that India violated the principle of national treatment by favoring its own domestic products (solar cells and modules) over the imported ones.[7] Thereafter, the U.S. filed a request in the World Trade Organization (WTO) to impose retaliatory tariffs on India due to its non-compliance with Dispute Settlement Body’s (DSB) recommendations.[8] Even in the past, the U.S. imposed a fine of a whopping $450 million on India in the avian influenza case without first confirming if India complied with the DSB’s recommendations.[9] Furthermore, ever since the U.S. pulled out of the Iran nuclear deal, there has been mounting pressure on India to cut down its oil imports from the gulf nation or bear the brunt of the sanctions imposed thereafter.[10] The S-400 missile deal with Russia would most probably than not attract application of Countering America’s Adversaries Through Sanctions Act (CAATSA).[11] At this point, India should not kowtow to the U.S., and must balance its relationship with the latter in a way that does not jeopardize its own economic and trade interests.
The U.S.- China trade war
The tit for tat game of imposing reciprocal tariffs between the U.S. and China began with the U.S. imposing 25% tariffs on Chinese goods worth $34 billion.[12] In retaliation, China implemented tariffs on 545 U.S. products including soybean, beef, dairy products, motor vehicles and fish.[13] Further, the U.S. imposed another 10% tariffs on approximately $200 billion of Chinese goods. China in response approached the WTO to complain regarding the U.S.’s latest tariff imposition threat.[14] There is a risk that further deterioration of U.S.-China trade relations would impact the global supply chain, possibly resulting in the relocation of factories and distribution hubs.[15] This would be harmful for both the U.S. and China as global giants like Apple operate in both countries.[16] The end consumers would be affected the most as the prices of consumer goods would increase, in turn raising the common persons’ cost of living.[17]
Further, China is not the only country the U.S. has taken an offensive stance against, with the European Union being another one of its trade adversaries. The U.S. and the EU have been at loggerheads ever since the former imposed steel and aluminium tariffs in June, 2018 and the latter responded by implementing a $3.2 billion tariffs on goods.[18] Keeping in mind Donald Trump’s rash economic and trade policy, this tit-for-tat imposition of tariffs could upend the global trading mechanism.[19]
Opportunities for India
The repercussions of the ongoing trade war are bound to have some effects in other areas as well. Already, the Trump administration has implemented stricter visa norms for Chinese students.[20] The incident of the U.S. temporarily banning Qualcomm and Google from supplying the requisite technology and chips to ZTE, (the Chinese telecommunication giant) is yet another instance wherein the effects of the trade war are being felt in all directions.[21] For India, on the other hand, this bodes good news. The Chinese will be looking for software partnerships elsewhere in the world to counteract the dominance of the U.S. in the telecom and software sector. Provided that swift policy action and implementation take place, India certainly has the capability to put this deal in its bag. India has high IT and entrepreneurial competence, and therefore, has the potential to make most of this opportunity.[22] The only hurdle along the way would be investment. China, which is not a hub for software manufacturing should provide the adequate investment to India for this purpose.[23] This would also contribute towards reducing India’s trade deficit with China which was nearly $50 billion last year.[24]
Another area which might be beneficial to India is the export of soybean. China is the largest consumer and importer of soya bean in Asia. Up till now it used to import genetically modified (GM) soya bean from the U.S. for the purpose of processing. However, due to the on-going trade war, China has now started importing the same from India and Brazil.[25] The time is ripe for India for making its place in the global soya bean market. India has some definite advantages in terms of growth of soya bean: one, it grows the non-GM variety of soya bean which is preferred globally and especially by China; two, growth of soya bean requires moderate amount of water; three, India has a large proportion of population who are vegetarians, therefore, there is presence of a huge domestic market for its consumption.[26] Even though Soya bean is present in almost 60% of all processed food, its processing market has been largely unexplored by Indian manufacturers.[27] There is only one Indian manufacturer present in the soya bean processing sector.[28] Entering into the soya bean market can be a much needed booster for the Indian agriculture sector. The time is ripe for India to make most of this opportunity and effectively enter into manufacturing and processing soya bean market. [29]
Agricultural exports, which is the U.S.’s strength is getting detrimentally impacted due to the trade war. India can harness this as an opportunity to increase its exports of organic agricultural products of the non-GM variety, accepted both in China and Europe.[30] Up until now, the Indian agricultural policy has been devised in a way to control the food prices due to the existence of a large population of hungry and mal-nourished people.[31] Minimum support price is given by the government to incentivise the production of agricultural products and food prices are kept in check via public distribution system.[32] Quantitative restrictions on export of food grains are placed by the government in order to satisfy its demand in the domestic market.[33] An overhaul of India’s agricultural policy is required at this stage and the government must aim to shift focus towards export oriented farm production.[34] India has enormous potential to tap its resources to become a major exporter of agricultural products. Steps must be taken to shift the development of processed agricultural products in India itself which is also known as ‘Bake in India’.[35] Providing export incentives for processed and organic agricultural products will help India make its place in the global market and also give adequate remunerative prices for farmers.[36] The Agricultural Export Policy 2018 aims at framing policies in a manner that free all processed agricultural products and organic products from any kind of export restrictions such as export ban or export duty.[37] The current tumultuous trade environment could prove to be beneficial for India which has just taken its first few steps towards developing a new export oriented agricultural policy.
The textile industry is another area in which India can spread its wings and benefit from the ongoing U.S.-China trade war. The U.S. imposed additional tariff of 25% on 200 billion dollar imports from China on May 10, 2019 which includes textile products.[38] The U.S. imports products such as wool, cotton, silk and different kinds of fibres from China,[39] and the additional tariff hike has negatively affected this trade between the two countries. This can prove to be a golden opportunity for India whose textile exports to the U.S. are a mere one-third as compared to those from China.[40] The focus of the Indian government should be on devising policies in the best possible manner to use this as a leverage to increase its textile exports to the U.S.
Conclusion
At this point of time, it would do well for India to overhaul its import-export strategy. The hike in crude oil prices is a warning signal that unless a new strategy is developed, the existing trade deficit would come nowhere near decreasing. A group of advisors must be appointed who closely monitor the imposition of tariffs and suggest possible sectors which can be tapped into by India and prove to be advantageous for its export industry. As the current scenario holds, India can become a strong player in the export of soya, organic agricultural products and textiles to other countries as has been highlighted above. India must make most of this opportunity and use this current trade environment as a leverage to establish a strong trade relationship with China, change its policy outlook and take certain concrete steps to get back on the course to increase its domestic growth.
[1] Tadit Kundu, Why India should worry about the latest U.S. tariffs, June 6, 2018, available at https://www.livemint.com/Politics/HOTHYs3MgLX3xqzi3PYV9I/Why-India-should-worry-about-latest-U.S.-tariffs.html (Last visited on July 16, 2018).
[2] Tadit Kundu, India among the hardest hit by protectionist measures in the G-20 club, April 9, 2018, available at https://www.livemint.com/Industry/PNnZVf8otX60joraROl0AM/India-among-the-hardest-hit-by-protectionism-in-G20-club.html (Last visited on July 16, 2018).
[3] Kundu, supra note 1.
[4] Ranjan Mishra, Trump threatens India, China with reciprocal tax, March 9, 2018, available at www.livemint.com/Politics/AIwPg2i8zTpgDpgV33rvnO/Donald-Trump-threatens-to-impose-reciprocal-tax-on-India-Ch.html (Last visited on March 10, 2018).
[5] TCA Sharad Raghavan, India notifies higher tariffs on U.S. imports, June 22, 2018, available at https://www.thehindu.com/business/Economy/india-notifies-higher-tariffs-on-us-imports/article24223938.ece , (Last visited on July 19, 2018).
[6] Suhasini Haider, No longer seeing eye to eye, June 7, 2018, available at https://www.thehindu.com/opinion/lead/no-longer-seeing-eye-to-eye/article24098227.ece (Last visited on July 15, 2018).
[7] D. Ravi Kanth, WTO: India-U.S. dispute over solar cells, modules intensifies, January 10, 2018, available at https://www.livemint.com/Politics/UNRFSuIcJ4KYvUBWfu59wL/WTO-IndiaUS-dispute-over-solar-cells-modules-intensifies.html (Last visited on July 19, 2018).
[8] Id.
[9] Id.
[10] Suhasini Haider, In the U.S. zeal against Iran, India has become an inadvertent casualty: Ashley Tellis, July 23, 2018 available at https://www.thehindu.com/news/national/ashley-tellis-interview-in-us-zeal-against-iran-india-has-become-an-inadvertent-casualty/article24488688.ece , (Last visited on July 24, 2018).
[11] Id.
[12] Manoj Joshi, Global Economy will pay the price of the escalating U.S.-China trade war, July 10, 2018, available at https://www.orfonline.org/research/global-economy-will-pay-the-price-of-escalating-us-china-trade-war/ (Last visited on July 12, 2018).
[13] Id.
[14] Id.
[15] Linda Yueh, How a U.S.-China trade war would hurt us all, April 5, 2018, available at https://www.theguardian.com/commentisfree/2018/apr/05/us-china-trade-war-supply-chains-consumers, Last visited on July 21, 2018).
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] Joshi, supra note 12.
[21] Sandip Sen, Can India benefit from the U.S.-China trade war?, May 28, 2018, available at https://www.orfonline.org/expert-speak/can-india-benefit-from-the-us-china-trade-war/ (Last visited on July 12, 2018).
[22] Sandip Sen, India needs a new strategy to survive Trunp’s trade war, June 21, 2018, available at https://www.orfonline.org/expert-speak/41795-india-needs-a-new-strategy-to-survive-trumps-trade-war/ (Last visited on July 12, 2018).
[23] Id.
[24] Sen, supra note 21.
[25] https://www.investopedia.com/industries-most-likely-to-be-impacted-by-trade-disputes-with-china-in-2019-4580508
[26]Sandip Sen, US-China trade war an opportunity for India to boost soya bean production, April 4, 2018, available at https://www.downtoearth.org.in/news/agriculture/chance-in-crossfire-60047 (Last visited on June 12, 2019).
[27] Id.
[28] Id.
[29] Anil Sasi, How a U.S. China trade war can hit the Indian market, April 6, 2018, available at https://indianexpress.com/article/explained/how-a-us-china-trade-war-can-hit-indian-market-5125446/ (Last visited on July 12, 2018).
[30] Sen, supra note 22.
[31] OECD, Agricultural Policy Review of India, July, 2018, available at http://icrier.org/pdf/Agriculture-India-OECD-ICRIER.pdf (Last visited on June 15, 2019).
[32] Niti Aayog, Evaluation Report on Minimum Support Price, January, 2016, available at https://niti.gov.in/writereaddata/files/writereaddata/files/document_publication/MSP-report.pdf (Last visited on June 13, 2019).
[33] OECD, supra note 31.
[34] OECD, supra note 31.
[35] Ministry of Commerce, Draft Agricultural Export Policy, 7 (2018).
[36] Madhvi Sally, Trade expects new agri policy to give impetus to sector, December 10, 2018, available at https://economictimes.indiatimes.com/markets/stocks/news/trade-expects-new-agri-policy-to-give-impetus-to-sector/articleshow/67020360.cms?from=mdr (Last visited on June 15, 2019).
[37] Ministry of Commerce, Draft Agricultural Export Policy, 7 (2018).
[38] FE Bureau, US tariffs on China big opportunity for Indian textile industry, May 18, 2019, available at https://www.financialexpress.com/industry/us-tariffs-on-china-big-opportunity-for-indian-textile-industry-citi/1581672/ (Last visited on June 15, 2019).
[39] Id.
[40] Id.
This article has been authored by Vani Kaushik, a Fourth Year Student of the West Bengal National University of Juridical Sciences, Kolkata.
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