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US tags INDIA as developed nation, withdraws special status

US tags INDIA as developed nation, withdraws special status

Mr Trump’s growing list of trade frictions has added another name to it, that being India’s. The trade frictions ramped up by the weekend when the United States President Donald Trump removed India from the generalized system of preferences (GSP). The troubles with China has been going on for months and now the victim to the trade attack are two new countries, India and Mexico.

 

Generalized System of Preferences (GSP)

 

GSP is one of the oldest preference programs which was established by the Trade Act 1974. The program provides opportunities and promotes economic growth for developing countries. It encourages trade between developing countries and the US by eliminating duties on various products imported. There are 120 designated beneficiary countries of this preferential program and India was the largest beneficiary in 2017.

 

The preferential rights under GSP, that allowed India to export hundreds of products to the US duty-free has been terminated. This is because India failed to give assurance to the US of equitable and reasonable access to US companies in the Indian market.

The immediate and most affected would be the automobile industry and the textile industry. In the automobile industry, the auto parts and components are mainly exported to the US.

 

Due to this elimination, India will get affected around $190 million worth of Indian exports. In 2017, India benefited by $5.7 billion through exports to the US.

 

US warnings

 

In March 2019, Mr Trump wrote a letter to the Indian government where he mentioned his concerns. The underlying issues included India taking advantage by shutting down American business. Many meetings have been carried out throughout the years which had given clues to India of the recent state. There was a meeting with the then finance minister of India, Mr Arun Jaitley, and the US commerce secretary, Mr Wilbur Ross. In this meeting, the USA had confirmed on not giving any concessions on Indian oil companies. This was in reference to the US sanctions on Iran and Venezuela. Due to which, India had to stop importing crude oil from Iran which increased the prices of oil.

 

Previously, Mr Trump has also accused India of being a high tariff nation. He has also threatened India of reciprocating these high tariffs with high duties. Furthermore, he mentioned his often cited example of the iconic Harley Davidson. President Trump says, when the US exports a motorcycle to India, it imposes 100% tariff and when India exports a motorcycle they charge nothing.

 

The trade relationship of India – US, loggerheads after India tweaked their Foreign Direct Investment (FDI) policies. Due to which US giants Amazon and Walmart who were trying to enter India were affected. Mr Trump has also mentioned about the high tax structure of India.

 

Retaliating to unilateral hikes in the duties of Indian steel and aluminium, India imposed a tariff of US products. A tariff of $241 million was levied on 30 US products which are imported to India. These products include almonds, apples, motorcycles, etc. The US imposed 25% tariffs on steel and 10% on aluminium which are exported.

 

After the elimination of India from GSP

 

India to return to the negotiating table with the US after the trade attack. US commerce secretary, Mr Wilbur Ross is in India for a trade business forum hosted by the US commerce. There is much to be hammered out between India and the US with the preferential issues going on. Piyush Goyal, the new commerce minister of India will meet government officials on June 6, 2019, to discuss the underlying issues.

 

India is also trying to ratchet up its trade disputes through a relationship with the US for defence equipment purchases.

 

Negative impact on the US

 

This has affected the US indirectly by domestic price hikes and impacts the economic growth of the country. Furthermore, the domestic population’s livelihood is affected by these tariff impositions. Moreover, every US family will have to pay an additional $830 per annum for consumer items. Thus, with the growing list and global markets already levitated, the overarching question still remains, is the US headed towards recession?

 

This has, in turn, increased the pressure on the US importers. They will have to pay extra tariffs now for importing goods because of this elimination.

 

By these impositions and removal of preferential rights seems like Mr Trump has struck a win, but is it really so? Or is the US just taking two steps forward and three steps backwards?

 

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