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Withdrawing GSP status no big deal, but Donald Trump’s myopic act may affect pace of India-US strategic ties

Throughout his tenure, US president Donald Trump has shown tenacity in a single-minded obsession over fulfilling his campaign promises. Be it the trade war, doubling down on immigration or building the border wall, Trump has shown laser focus in placating his ‘base’, which he considers crucial for the 2020 campaign.

With increasing political pressure on Trump owing to Robert Mueller inching closer to the president in his investigation into Russian interference in the 2016 US Presidential Election and Democrats regaining control of the House of Representatives (in the midterm elections), the US president has concurrently responded by digging his heels deeper into the issues he reckons as foundational for his future.

 Withdrawing GSP status no big deal, but Donald Trump’s myopic act may affect pace of India-US strategic ties

File image of US President Donald Trump. Reuters

Trump’s decision to end preferential trade status for India is another example of his transactional attitude that focuses on narrow issues at the cost of harming wider strategic considerations. Up until now, the India-US relationship has proceeded on almost parallel trajectories. While trade issues have remained an unsolved, festering problem, both countries have simultaneously strengthened their strategic and defence partnership with New Delhi emerging as the fulcrum of Washington’s Indo-Pacific policy.

It was believed that the conjunction of shared interests and values — and the fact that India is the world’s top weapons importer and US arms' export to India has recorded over 550 percent growth in 2013-17 (according to SIPRI data) compared to the previous five years — would eventually act as a bridge between trade and geopolitics. India’s argument has always been that its trade surplus with the US — that stood at $27.3 billion in 2017 (a small change compared to China’s $375-billion surplus) would eventually be wiped out with signing of key foundational agreements with the US such as LEMOA, COMCASA paving the way for even more arms purchases.

Trump evidently doesn’t see it that way. His Monday’s notification to the US Congress that his administration plans to "terminate" India’s (and Turkey’s) designation as a beneficiary of its Generalised System of Preferences (GSP) — the largest and oldest US trade preference programme meant to give a fillip to the economies of primarily developing nations by allowing thousands of products to be imported duty free — is meant to be a warning shot to New Delhi that it must get serious about settling the trade differences.

"I am taking this step because, after an intensive engagement between the US and the Government of India, I have determined that India has not assured the US that it will provide equitable and reasonable access to the markets of India,” Trump’s letter to congressional leaders stated. The move has been meant as a retaliatory measure for the "wide array of trade barriers that create negative effects on United States commerce".

The notification has a 60-day validity before the POTUS acts on his own, or he may cancel the termination if the countries meet the concerns. Ending of GSP, however, is not expected to hurt India too much even though New Delhi has been the top exporter to the US in 2017-18 under the programme with goods worth $5.6 billion that includes industrial valves, textile materials, motor vehicle parts, precious-metal jewellery and insulated cables. It accounted for roughly 10-12 per cent of India’s total exports to the US worth $48 billion in goods during that period.

According to India’s Commerce Secretary Anup Wadhawan, who spoke to reporters on Tuesday, the US termination of India’s GSP eligibility won’t have any significant impact since the duty benefit to India on exports under preferential treatment was "relatively limited" at $190 million. The "economic value of GSP benefits are very moderate", he was quoted, as saying in media reports.

In fact, India’s response has been decidedly non-confrontational with Wadhawan insisting that India won’t discuss retaliatory tariffs during discussions with the US "given cordial and strong ties" and will keep that for internal review. India and the US have been working on a "trade package" to address each other’s concerns, but have been unable to arrive at a solution despite having met multiple times.

The US seeks to slash Indian import duties on medical devices, agricultural goods, mobile phones, dairy products, etc, while Trump remains fixated on Harley Davidson motorcycles — an issue he picked up again last Saturday while delivering a speech at the Conservative Political Action Conference.

The US is also worried over India’s revamping of the e-commerce rules that has been perceived as an effort to hit the dominance of Amazon and Walmart (through Flipkart) so that American e-retailers cannot take advantage of their deep pockets to drive down prices in India and outmanoeuvre domestic businesses. The Trump administration sees it as one more protectionist measure by the Narendra Modi government that adds to the trade irritants.

On the other hand, India sees US tariffs on steel and aluminum and its series of measures to restrict the granting of H-1B visas (used primarily to employ technology workers from India since every three out of four such visa holders are Indians) as key concerns that remain unaddressed.

None of these differences may derail the India-US partnership, but the timing of Trump’s announcement may have a political impact since General Elections to the Lok Sabha in India are only weeks away. It won’t be possible for any Indian administration to comply with US demands in light of the penal action (termination of GSP) since it may be seen as India buckling under US pressure. It may also impact the India-US strategic relationship to the extent that it may embolden US sceptics in India who have warned against getting too close to Uncle Sam.

Trump’s decision also seeks to ignore the fact that geopolitical and trade issues are inalienable in today’s interconnected world. China uses trade as a weapon to achieve geopolitical objectives. While dealing with trump administration’s threats of a trade war, it has moved to relax certain areas of the market for India — a country it wants by its side on this issue. Not surprisingly, India’s massive trade deficit with China is showing signs of shrinking a bit, according to latest reports.

The foundational structure of India-US strategic partnership is too strong to be derailed by trade disagreements — which can also be interpreted as a sign that bilateral trade is now vigorous than ever — but Trump’s myopia may affect the pace of the relationship. As Democrats take tentative steps towards impeachment of the US President and White House gets ready for a vote on the wall, Trump may turn the heat on soft targets such as India to deflect part of the pressure.

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Updated Date: Mar 06, 2019 17:41:20 IST