By Abhijit Das
President Donald Trump’s America First trade policy has created turmoil across continents. Colombia, Canada, Mexico, and China have already faced the brunt of the muscular use of tariffs by the US for supposedly addressing illegal immigrants and illegal sales of fentanyl. President Trump has also threatened the European Union with high tariffs. What goals Trump will seek to achieve with his tariff threat and which country he will strike next remains uncertain.
While India has managed to stave off any immediate tariff threat, the signs appear to be ominous. In the past, Trump has accused the country of being a tariff abuser and currency manipulator — accusations which have been strongly denied by the Indian government. India should brace itself for being required to accommodate the economic interests of the US.
With the US accounting for almost 17% of India’s merchandise exports and our overwhelming dependence on it for exports of information technology services, we are undoubtedly vulnerable to pressures from the US. On the trade front, what could be the demands made by the US on India? The 2024 National Trade Estimate Report on Foreign Trade Barriers (NTE report) brought out by the United States Trade Representative, which contains a laundry list of perceived grievances against its trading partners, provides some pointers.
First, the NTE report identifies high tariffs on the following products as constituting a significant barrier to trade in agricultural goods and processed foods: alcoholic beverages, almonds, apples, canned peaches, chocolate, citrus fruits, coffee, cookies, corn, dairy products, frozen French fries, grapes, pecans, potatoes, poultry, prepared foods used in fast-food restaurants, raisins, vegetable oils, walnuts, etc. These products are likely to be on the US list of demands for lowering customs duties and easing import requirements.
Second, in the manufacturing sector, the NTE report makes a mention of India’s high tariffs on motorcycle, automobiles, drug formulations, medical devices, and telecommunications equipment. Further, it has commented adversely on price controls for cardiac stents and import restrictions on laptops, tablets, and servers. President Trump could seek to prise open the Indian market for increasing the US exports for these products.
Third, with respect to services, India’s prohibition on foreign investment in the inventory-based model of e-commerce retail, the government maintaining an “explicit sovereign guarantee on every Life Insurance Corporation policy”, and the same giving it “an unfair competitive advantage” find adverse comments in the NTE report. The US has also raised concerns about the announcement by the National Payments Corporation of India to impose a market share limitation of 30% for foreign electronic payment service suppliers processing online payments made through India’s United Payments Interface. There are several other market access-related concerns of the US in various service sectors.
Fourth, it is hidden from no one that an important objective of the US is to enhance the windfall profits of its producers of patented pharmaceutical products by seeking to dismantle India’s generic medicine industry. This is to be done through tightening provisions beyond what has been mandated by the Trade-Related Aspects of Intellectual Property Rights agreement at the World Trade Organization. In particular, the US is likely to demand an amendment to Section 3(d) of the Indian Patents Act, which has so far been effective in putting brakes on evergreening of patents and facilitating the timely entry of generics in the market. The NTE report has specifically articulated US concerns on Section 3(d).
Addressing the issues of deep economic interests to the US are likely to have far-reaching and adverse implications for India. Given the very high level of subsidies provided by the US to its farm sector, the livelihood of Indian farmers would be threatened if India lowers the customs duties on agriculture products with substantial domestic production. It would also have an adverse impact on the efforts of the government to diversify from cereal production to other agricultural products. Aatmanirbhar Bharat could take a hit on account of lowering tariffs on automobiles, or changing rules to accommodate US interests in various service sectors. Further, allowing inventory-based online retail would exacerbate the crisis confronting small and medium enterprises as well as kirana stores. Removing the price caps on cardiac stents and making changes to the Indian Patents Act to address American concerns would result in a gradual increase in the price of medicines and make affordable healthcare a fast-receding dream for large segments of the population.
How should India respond to US concerns? First and foremost, as in the case of India’s response to Trump’s tariffs on steel and aluminium in the past, it must not hesitate in imposing retaliatory tariffs in case the US again imposes illegal tariffs on India’s exports. Second, India could indicate its willingness to address some issues of US interest, provided the adverse impact on its farmers and workers is minimised and healthcare of its citizens not jeopardised. As suggested by some analysts, certain aspects of the recent Budget appear to be a step in this direction. Third, as an integral part of any deal with the US, India must insist on securing reciprocal market access for its goods in the US market. Fourth, India could agree to enhance its defence purchases from the US, provided the terms and conditions are right. No doubt all this would constitute a transactional approach to trade issues in the bilateral context. However, getting trapped in a free trade agreement negotiation, where India would be required to comprehensively address issues of interest to the US in merchandise trade, services, government procurement, digital trade, genetically engineered products and intellectual property, would not serve its interests.
The writer is an international trade expert.
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