Skirt trade wars

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Skirt trade wars

India should focus, instead, on reviving exports. Integration into global production chains should be given primacy.

Source: https://indianexpress.com/article/opinion/editorials/india-us-import-trade-tariff-china-5789210/

Why in news?

  • India has decided to impose retaliatory tariffs on 29 goods imported from the U.S. The decision comes a year after New Delhi initially decided to do so.

Background

  • The retaliatory duties will be notified by the Department of Revenue once approved by the Finance Ministry.
  • The Commerce & Industry Ministry, which has proposed imposition of the retaliatory tariffs, has already got the approval of the Ministry of External Affairs for the imposition.
  • The tariffs will place a burden of $220-290 million on the U.S., about the same amount imposed by Washington on India in 2018.
    • Tariffs on apples, almonds, shrimps, chickpeas, boric acid and some other items imported from the US are set to go up as the government has finally decided to impose retaliatory duties worth over $200 million on 29 products.
  • The proposed action, which comes a year after the notification for the duties was first drafted in June 2018, is in response to penal duties imposed on Indian aluminium and steel at 10% and 25%, respectively, by Washington last year.
    • However, negotiations continued for about a year, with India repeatedly extending the deadline for the imposition of retaliatory tariffs.
    • These talks, as well as the ones surrounding granting India duty-free imports for certain items under the U.S.’ Generalised System of Preferences (GSP) seem to have fallen through.

India-US trade war

  • The move follows Washington’s decision to withdraw benefits extended to Indian exporters under the generalised system of preferences (GSP) as well as its reluctance to exempt India from higher tariffs on steel and aluminium imports.
  • Further, the decision to levy tariffs on US agricultural products appears to be strategic — politically, its an important constituency.
  • But, India needs to tread carefully. While failure to react could have been construed as a sign of weakness, there is genuine concern that the move could provoke further action.
  • At a time when export growth has been sluggish, rather than getting dragged into a spat with its largest trading partner, the focus should be to address the bigger problem of India’s subdued export peformance and the unmistakable rise in protectionist tendencies in the recent past.
  • Efforts to revive export growth, by integrating itself into global production chains, should be given primacy.

US-China trade war

  • India is among a handful of economies that stand to benefit from the trade tensions between the world’s top two economies, the United Nations has said in a report.
  • The ongoing trade war between the US and China provides India an opportunity to boost its exports.
    • Of the $300 billion in Chinese exports that are subject to US tariffs, only about 6% will be picked up by firms in the US, according to a report released in February by the UN Conference on Trade and Development (UNCTAD).
      • EU members are expected to benefit the most, as exports in the bloc are likely to grow by $70 billion; and Japan and Canada will see exports increase by more than $20 billion each, it said.
      • Other countries set to benefit from the trade tensions include Vietnam, with 5% export gains, Australia (4.6%), Brazil (3.8%), India (3.5%), and Philippines (3.2%), the UNCTAD study said.
    • According to reports, a Ministry of Commerce study suggests that of the 774 US tariff lines on which China has imposed extra duties, India has the scope to boost its exports in 151 items.
      • In these 774 items, China’s imports from the US stand at an annual $20.4 billion. But while the opportunity exists, the question is whether India can scale up its production to meet the demand.

Challenges

  • The worry is that countries like Vietnam and Bangladesh are better placed to take advantage of the ongoing trade war.
    • In fact, these countries have seen a surge in their exports, even as India’s exports have remained largely at the same level over the past five years.
  • Slow global growth and trade will only complicate matters as countries will compete aggressively for export market share.
    • The IMF has already lowered its world growth forecast to 3.3% in 2019, from 3.6% last year, and the WTO expects trade volume growth to fall to 2.6% in 2019, from 3% in 2018.

Way ahead

  • Measures to promote domestic manufacturing are needed to boost exports. But they should be WTO compliant.
  • Simplifying tariff structures and lowering tariffs will help integrate India in global production chains and provide the much-needed impetus to exports and employment.
  • Perhaps the visit by the US secretary of state, Mike Pompeo, later this month could also help clear the air on the India-US trade spat.

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