India-US Trade Relations: A Complex Evolution
Two decades ago, a trade deal between India and the US seemed improbable due to stark differences in tariffs and standards. Today, however, this idea is within the realm of possibility owing to India's strategic shift in trade diplomacy. This transition reflects India's aim to diversify trade partnerships and strengthen its position in global supply chains, especially as the multilateral system faces challenges.
India's Strategic Shift in Trade Diplomacy
- Objective: Diversifying trade partnerships to enhance global supply chain integration.
- Approach: Transition from a cautious stance to actively pursuing free trade agreements.
- Motivation: Self-interest to expand exports, attract investment, and navigate geopolitical challenges.
US Trade Diplomacy under President Trump
- Tariff Strategy: Leveraging tariffs to extract concessions from trading partners, aiming to eliminate trade deficits and increase government revenue.
- Recent Actions: Announced a 25% tariff on Indian exports effective August 1, aimed at addressing India's high tariffs and non-monetary trade barriers.
- Strategic Aim: Strong-arm other countries like the EU, Japan, Vietnam, Indonesia, and South Korea into concessions.
Generalized System of Preferences (GSP) and Development Asymmetries
The GSP, offering non-reciprocal, duty-free treatment to several Indian products, is under negotiation but unlikely to be reinstated due to developmental asymmetries between the US and India.
Key Sticking Points: Agriculture and Dairy
- US Agricultural Interests: Expand sales of cheese, milk, maize, soy, corn, nuts, and fruits.
- India's Red Lines: Protecting small farmers who form a significant part of the workforce and avoiding political fallout from allowing subsidized US farm produce.
- Historical Context: Failed policies on farmer income and withdrawal of farm laws add pressure to maintain these red lines.
Negotiating Strategies and Outcomes
- US Successes: The US has secured tariff concessions from the EU, Vietnam, Indonesia, and Japan by using similar threats.
- Potential Indian Concessions: Areas like data localization, digital services taxes, and digital trade rules.
The Current Status of India-US Negotiations
While the India-US mini trade deal remains in limbo, optimism persists. The situation reflects the volatile and unpredictable nature of global trade relations.
