Restructuring US industry to make its products competitive must be President Trump’s primacy and not wage tariff wars with strategic allies.
K.A.Badarinath
One of the most searched on internet these days is tariffs. After US President Donald J Trump talked round the corner, stakeholders across geographies have begun to make sense of these tariff lines.
There’s, however, no reason why Bharat should give in to demands of quixotic President Trump who’s been holding forth with media twenty four by seven.
President Trump also seems to be in tearing hurry to make early impact as head of Republican White House. Hence, he set the April 2 deadline to impose massive tariffs on Bharat’s export of products and services.
Tariffs is a long story beginning with Donald Trump’s first term four years back when he went ahead and imposed tariffs on steel products, pharmaceuticals etc.
There’s definitely an imbalance in trade. Its advantage Bharat as US $ has a deficit of US $ 45.6 billion on bilateral trade worth US $ 191 billion.
And, India has reportedly made some proposals to rework the economic, trade and investment relations between the largest and oldest democracies globally.
One way could be to enhance defence purchases worth US $ 20 billion by Bharat. Another possibility is to increase energy products including LNG and other hydrocarbon products.
But, US may not be able to seize the window of opportunity opened by Bharat during bilateral engagement. Firstly, US defence establishment and deep state may not facilitate sale of F 35 fighter aircraft to Bharat. A big section of US set up is wary of even floating a joint venture to jointly produce F-35 aircraft with a non-NATO strategic ally like Bharat.
This joint venture possibly based out of Bhagyanagar aka Hyderabad need not limit itself to catering to Indian defence forces. It can become hub for exports to other destinations. Stringent protocols and agreement on who gets access to such advanced fighter jets could have been put in the blue print.
Story of energy purchases is more or less similar. Would US be able to match or provide equivalent prices offered by Russia on crude, refined or liquefied natural gas products? Either spot or long term contracts, US energy products may not be cost competitive vis-à-vis the middle-east or Russian sources.
For an expanding economic force like Bharat, every dollar paid per barrel translates to US $ one billion higher import bill. Insurance and freight differentials are again too huge for Bharat to enter into long term contracts with US.
Reciprocal tariffs from April 2 have been proposed by President Trump who thinks that the Bharat is fleecing American people. As per World Trade Organization data, this may not be altogether true. As against an aggregate US tariff of 2,2 per cent, Bharat levies 12 per cent that’s in sync with WTO norms under differential tariff regime.
President Trump may have a point relating to individual products like automobiles on which tariffs were brought down by Bharat to 70 per cent from 125 per cent on high end luxury cars. On motor cycles, the applicable tariff line is set at 40 per cent as against 50 per cent earlier.
Threat to impose 25 per cent tariff on all Indian goods may not work for US except for addressing political constituency of Donald Trump or for optics. Indian goods constitute just 2.7 per cent of all US imports and do not even figure in top ten exporting countries to America.
There’s no reason for mature friends like US and Bharat to haggle over manageable trade imbalance. Instead, working on the big picture like more than doubling the bilateral trade to US $ 500 billion by 2030 and clinching a ‘credible and sustainable’ trade deal in next one year is what’s more significant.
Simultaneously, US may have to rework its manufacturing and supply chains to be cost and quality competitive instead of rampaging in over pitched verbal duel with friends and foes alike. Re-inventing American manufacturing base to align with new age cut throat competition is something that Trump may have to work on beginning with massive restructuring of its industry.
US and Trump may not realize this ‘Make America Great Again’ dream unless some hard work is put into it. America may have to expand its bouquet of products and services that can compete in the global market with new forces on the block.
Trump’s complaint is that subsidies, non-tariff barriers and VAT system in Bharat hinder American exports. Well, his policy hawks may have conveniently forgotten that Value Added Tax (VAT) regime has come to an end several years back and it’s been subsumed into Goods and Services Tax (GST).
On subsidies, US have a very weak case. Can Donald Trump’s advisors prove that America does not subsidise its industry? In Bharat, food, fertilizers and oil products constituted a large part of subsidy bill till a couple of years ago.
Retail petroleum products prices have virtually been aligned with market demand and supply chain. There’s no depth in the argument that Bharat subsidises its petroleum products. It’s an emphatic no. Till a couple of years ago, kerosene was the only big subsidized oil product. After having taken piped gas and through cylinders to virtually every household, there’s hardly a big demand for kerosene.
Food subsidy or free food grains to the vulnerable sectors is definitely a reality in Bharat. And, its well within its right to fight poverty and hunger through the Prime Minister’s anna yojana.
In fertilizers, Bharat is more or less sufficient on urea while DAP and complex fertilizers subsidy is on the slide each year. Minimal subsidy available on a couple fertilizers is support given to farmers for ensuring enough food grains output for 1.4 billion and ward off imports.
On non-tariff barriers, US are yet to come up with a list of such restrictions put in place by Bharat. If restricted access to Bharat’s agricultural markets is an issue, US will have to ease its own norms on several sectors including specialized steel, dual use technologies, dairy products etc.
US President Trump may like to showcase ‘muscle flexing’ before his core voters constituency. That’s perfectly understandable. But then, dealing with strategic allies like Bharat is a different ball game. Trump should not mess up with Bharat.
(Author is Director and Chief Executive, Centre for Integrated and Holistic Studies, a non-partisan think tank based in New Delhi)
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