What does India’s major defence partner status have to do with steel tariffs? The answer is: everything
US President Donald Trump’s senior trade advisor Peter Navarro argued that the recently announced 25% tariff on steel and 10% tariff on aluminium should apply to all countries—no exemptions. Days after that announcement, the Trump administration reversed course, allowing a temporary exemption for Canada and Mexico, while the North American Free Trade Agreement (NAFTA) is being renegotiated. “I’ll have a right to go up or down depending on the country, and I’ll have a right to drop out countries or add countries,” said the President.
Most recently, the US Trade Representative (USTR) Robert Lighthizer announced that the US has requested dispute settlement consultations at the WTO with the government of India. USTR cited India’s benefits to Indian steel producers among other subsidies as examples of how India has created an uneven playing field for US companies and workers. India’s secretary of commerce Rita Teaotia argued that the moves do not constitute a trade war and that, wherever there are differences, they will be resolved.
India could still seek an exemption from the tariffs due to its military and defence ties with the US. But exemptions seem to be a Pandora’s box. The EU has already lined up for an exemption after Trump said countries with a “security relationship” could get one. Australia has followed the EU’s lead and received a tweet from Trump confirming that the US is working quickly on a security agreement with Australia. Taken to the extreme, many countries could argue for an exemption, leaving China as the only country affected by tariff increases. House Speaker Paul Ryan made the case for tailored tariffs that target China only. Where does this leave India? The US imports 2% of its steel from India ($700 million), a relatively small amount. If India does not get an exemption, assuming it still chooses to ship the same amount of steel to the US as it did last year, it would pay $125 million in tariffs.
Should India get an exemption?
Using the fluid requirements that have emerged over the past few days, the answer is yes. First, India does not pose a security threat. This US administration has bolstered its bilateral relationship with India, doubling down on India as an integral part of its national security strategy to challenge China. The National Security Strategy (NSS) released a few months ago focused on the “Indo-Pacific” and “welcome[d] India’s emergence as a leading global power and stronger strategic and defense partner.” It went on to include that “[The US] will seek to increase quadrilateral cooperation with Japan, Australia, and India.” This reference to the QUAD was a less than subtle response to Chinese aggression in the Indo-Pacific.
Second, does India have an existing “security relationship” with the US? India is not technically an ally (in part because it has not sought the same non-NATO ally status enjoyed by Pakistan, its difficult neighbour).
India certainly has a security relationship with the US. India is a “major defence partner” of the US—a designation that was enshrined in law in the National Defense Authorization Act of FY2017 and reaffirmed in FY2018. The Obama administration made that designation a major deliverable of the 2016 Joint Statement with India. The Trump administration has emphasised that status in statements by senior US officials from President Trump, Vice-President Mike Pence, Secretary of Defense James Mattis, and Secretary of State Rex Tillerson. Those statement are not empty words. The administration approved the sale of Sea Guardian drones to India (the first such sale to a non-ally, non-NATO country), as a way of showing that “major defence partner” status means something.
Will India seek an exemption?
Secretary Teotia has indicated that India will seek an exemption. The question remains, what will the Trump Administration ask for in return? In this uncertain environment where decisions on exemptions will be made ad hoc, uncertainty rules. And that’s not good for business.
Writer is Vice-president, Legislative Affairs, US-India Strategic Partnership Forum (USISPF)