After the European Union and China, the United States has now entered a trade war with India, with both countries raising import tariffs on various goods in a tit-for-tat action.
Matters came to a head on June 5, when the US withdrew the preferential access for Indian products that had been granted under its Generalized System of Preferences. That’s a mechanism for enabling preferential treatment to imports from developing countries.
With this move, US$5.6 billion worth of Indian exports – previously duty-free in the US – will now be taxed. This has affected India’s export of leather products, pharmaceuticals, chemicals and some farm products to the US.
In retaliation, India raised tariffs on 28 items exported from the US with effect from Sunday. They include chickpeas, phosphoric acid, apples, almonds and walnuts. While the import duty on walnuts has been raised to 120% from 30%, for chickpeas it has been raised to 70% from 30%.
Interestingly this move comes just a few days ahead of a visit by US Secretary of State Michael Pompeo to India during his tour of the Indo-Pacific region. India’s Foreign Minister Subrahmanyam Jaishankar is also due to meet Pompeo at a G20 summit in Japan.
Alhough US President Donald Trump shares a rapport with Indian Prime Minister Narendra Modi and the two countries enjoy a good strategic partnership, trade tensions have been on the rise.
Last year, India retaliated against US tariff hikes on aluminum and steel by raising its own import duties on a range of goods.
The Trump administration has long been upset with high import tariffs imposed by India on goods exported from the US and considers India to be one of the highest-taxing nations.
Trump has cited the example of Harley-Davidson motorcycles, which had earlier attracted an import duty of 100% in India, while motorcycles exported from India to the US were exempt from any tax. He wants taxes on Harley-Davidson to go.
Referring to a conversation he had with Modi, he once said, “So, when Harley sends over there, they have 100% tax. When they (India) send in — they make a tremendous number of motorcycles — when they send them in, no tax. I called him. I said it’s unacceptable.” According to the Press Trust of India, Trump added that Modi “reduced it by 50% with one phone call. I said it’s still unacceptable because it’s 50% versus nothing. It’s still unacceptable.”
Trump recently remarked that the United States was a bank everyone wants to rob.
The strain in trade ties between the two economies comes at a time when the global economic growth rate is projected to slow down. The International Monetary Fund had in April downgraded global growth to 3.3% for 2019, from the 3.5% it had forecast in January.