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US President Donald Trump

Tariffs have become the favorite tool of US President Donald Trump. If he cannot get what he wants in concession, he is happy to tax US consumers with tariffs on other countries. Trump claims that the United States receives billions of dollars in collections from tariffs, but this is not from outside the US, it’s from US consumers. It now appears that India is in the crosshairs. The country will become the latest victim of the Trump administration’s effort to reshape its international trading relationships.

Who Will Be Affected?

Indian exporters of goods including building materials, solar cells, and processed food will face a hike of up to 10% in the US tariffs imposed on their products, following the Trump Administration revocation of India’s membership on the Generalized System of Preferences, or GSP. The GSP was introduced in the mid-1970s as part of a preferential trading agreement between the US and emerging countries. In 2018, India was the largest beneficiary of the GSP. More than 6.3-billion-dollar worth of exports from India to the US had no tariffs.

Why is This Happening Now?

The issue comes to light in the wake of the recent general election in May. The hope of the Trump Administration is that Indian businesses will rethink the applications of the Modi government. Trump in a statement said that the Indian tariffs were a form of retribution. He accuses India of a non-bilateral agreement where US companies do not have equitable access to the Indian markets. The underlying issues that lead to the complaint is an ongoing dispute over permissions to sell medical devices and certain dairy products to Indian consumers.

What Does the US Want?

The US wants American firms to be able to bypass India’s strict price controls on healthcare products. It also wants businesses to be able to sell cheeses from animals which have been raised on feed containing bovine extracts. Since many Hindu’s do not eat cow products, this issue is a bone of contention.

The Coalition for GSP, as well as many US companies, believe this process of levying tariffs will be counterproductive. Retail giant Walmart said that India’s membership of the GSP program benefited its US customers on its products. The scenarios could reduce trade, as well as the demand for US dollar from Indian exporters, who might increase the cryptocurrency trading in India, to offset the decline in the Rupee.

What Could Happen?

The American Apparel & Footwear Association has warned the US government that the withdrawal of India’s GSP benefits would leave companies with no choice but to return to sourcing from China. It added that tariffs on Chinese imports meant that American consumers will pay far higher prices as the tariffs will act as a tax on goods. While the Indian government has yet to respond, this move will provide the first major foreign policy challenge to Mr. Modi’s new cabinet. While Modi has been spared a twitter rant from President Trump, the relationship between the two is under great strain and faces many additional challenges in the near future.

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