America’s President Donald Trump seems prepared to go the whole hog on his threat to end preferential trade treatment that has allowed India duty-free entry for $5.6 billion worth exports. He has hectored India for a while on import tariffs on Harley-Davidson motorcycles even after India cut the duty from 75 per cent to 50 per cent. Curiously, a luxury product was at the forefront of an incipient trade war even as the United States is trying to go back on a threatened tariff regime and strike a new trade deal with China, by far its biggest trading partner. Still somewhat new at his job, the real estate magnate who became US President may see every deal from the dollar and cents angle than as long-term trade ties between a developed and a developing nation.
The point is India should speak some home truths to Mr Trump without letting it affect the larger US-India relationship. India has been the largest beneficiary of the Generalised System of Preferences programme since the 1970s while this sat amid a strategic geopolitical relationship of mutual respect. Indian officials say that GSP is only symbolic of an important strategic partnership, and the impact of its withdrawal may be low in actual terms. The political fallout in an election season could be embarrassing for the ruling party. While there is still much scope for talking things over, India cannot afford to take a submissive position on this as the nation has never played junior partner to the superpowers in any situation while having the best of ties with both the US and Russia.
If the impact is only a little in economic terms, India will have to lump it, but not without holding negotiations in a way that doesn’t look deferential. The discriminatory treatment by the US in steel and aluminium tariffs last year can be highlighted, without overall ties being in any way impacted by minor differences of opinion. Global trade is so interconnected these days that the hawkish American stand on India trade may have to also do with India turning the screws on e-commerce giants like Amazon and Walmart-Flipkart, with newly restrictive rules on online selling, and about data management with the likes of Mastercard.
The unwisdom of these moves may be exposed as the impact becomes apparent as such manoeuvring for control and protection of domestic players may be tilting the balance that existed in favour of attracting FDI. In any case, the trade deficit for the US is only $4 billion, according to commerce ministry data, and is nowhere as big as with China for the Trump administration to escalate trade tensions with India. A mature rather than emotional approach is called for even if India is dealing with a petulant customer playing to the gallery, whose words haven’t often been followed up with action.