​Soured relations: On Trump’s 25% tariff, ‘penalty’

The 25% tariff “plus penalty” on imports of Indian goods in the United States, announced by President Donald Trump, should have come as no surprise to India. Mr. Trump has, for a while now, been voicing his displeasure at India’s dealings with Russia, with regard to energy dealings and military equipment. He has also been quite vocal about India’s high tariff and non-tariff barriers. These were the reasons he cited in his announcement on Wednesday. Add to this these facts — first, U.S. Trade Representative Jamieson Greer, as recently as Monday, had said that a trade deal with India needed “some more negotiations”, and second, Indian Commerce Ministry officials had stopped talking about a mini-deal for a while now. Thus, the writing on the wall was pretty clear: a deal before August 1 was not in the offing. The only uncertainty in this mix was the mercurial Trump, but he has finally made his position clear. However, while there was an expectation that a mini-deal would not materialise, something does seem to have shifted in India-U.S. relations. This is showing up now in Mr. Trump’s language — as a snide remark on Thursday about Pakistan selling oil to India in the future, or he, even more recently, calling the Indian economy “dead”. Whether this was him venting his frustration at not being able to secure a deal with India — after calling himself the “Dealmaker in Chief” — or whether something else has triggered him is not clear yet. The fact is that both sides have not budged from their core policies. The U.S. wants India to reduce its tariffs and provide market access across the board and India has held firm about ring-fencing agriculture and dairy.

All of this makes negotiating a potential bilateral trade agreement (BTA) that much more complicated. Where government officials have constantly changed deadlines for a mini-deal, they have been remarkably consistent about meeting the Fall deadline for the BTA. But now Mr. Trump has linked India’s dealings with Russia to India’s trade relations with the U.S. Who India does business with is a sovereign matter, and the Ministry of Commerce and Industry rightfully reiterated its commitment to securing India’s national interest. On the other hand, the U.S. accounts for around a fifth of India’s exports. The 25% tariffs plus a yet-unknown penalty places India at a relative disadvantage when compared to competitors such as South Korea, Indonesia, Malaysia, the Philippines and Vietnam. Trade associations representing several sectors have already voiced their concern. Indian negotiators will have to work doubly hard to conclude an acceptable deal.