By Nikhila Natarajan
New York, Feb 22 (IANS) Indias reputation in US President Donald Trumps backyard as a tough negotiator, the relatively small size of the Indo-US trade dispute compared with other fires the US is fighting and multilateral routes available to India are three reasons to bet that India will achieve closure on an elusive trade deal with the US, according to Pravin Krishna, distinguished professor of international economics and business at Johns Hopkins University.
“Between direct pressure, the WTO and the fact that retaliatory possibilities exist, I believe some kind of understanding will be reached. If an understanding is not reached, these are manageable scenarios”, Krishna told IANS.
The roughly 16-fold chasm between India and China’s trade deficit with the US is vital context while thinking about America’s approach to trade negotiations with India, he said.
The US runs a roughly $400 billion trade deficit with China, while the corresponding number for India is $25 billion.
A long negotiated trade deal between India and the US against the backdrop of simmering trade hostilities has headlined a good chunk of media coverage ahead of Donald Trump’s visit to India on February 24-25.
Trump has said that he’s saving the big deal for later, slammed India’s trade policy and claimed he personally likes India’s Prime Minister, all in a single narrative.
“That won’t spare India from a trade war with the US any more than Trump’s affection for Chinese President Xi Jinping spared China”, according to the Wall Street Journal’s chief economics commentator.
Ahead of Trump’s touchdown in New Delhi, Pravin Krishna spoke with IANS about the numbers that underpin how we should be thinking about Indo US trade. Below are highlights from the IANS interview.
IANS: Could you unpack the term US-India trade for our audience?
Pravin Krishna: Broadly, when we talk about Indo-US trade, we’re talking about trade in goods and trade in services. Let’s just put a few numbers on the table to understand the magnitude of this relationship. India exports about $55 billion worth of goods to the US and it imports about $30 – $35 billion worth of goods from the US. There’s a surplus in favour of India of about $20 billion. On the services side, India has about $30 billion worth of exports which are mostly IT services and these are fairly evenly matched. The US is about $25 billion, India has a surplus of about $5 billion there. So the total surplus from India’s side is about $25 billion – that is roughly the size of the economic relationship. To put this in perspective, comparing against US-China trade is instructive. When you look at how much China exports to the US, it has exports of about $550 billion to the US and imports about $100 billion plus from the US. So the trade deficit of the Chinese relative to India is about $400 billion in favour of the Chinese. When the US looks at India from the point of view of trade deficits, India’s number of $25 billion is considerably smaller than what has preoccupied Washington, which is US-China.
IANS: Could you explain the context of recent trade tensions, especially GSP, steel and aluminium tariffs?
Pravin Krishna: So, you pointed out two actions from the US side that have created some anxiety in the relationship. The first of these is the steel and aluminium tariffs. So, once the Trump administration came to power, one of the first things they did on trade was to put in place tariffs on steel and aluminium imports from other countries. The Trump administration put a 25 per cent tariff on US imports of steel from India, which is about $700 million worth and roughly 12 per cent or thereabouts on aluminium imports which were about $350-400 million worth. So roughly $1 billion worth of US steel and aluminium imports from India were affected. These tariffs were above what were previously negotiated by the US, so it was seen as aggression. In response, India said it would target $1.4 billion worth of American exports to India, and it took some time to do it. Sometime around June-July 2019, these new tariffs were put in place. About 20 to 25 per cent tariffs on about $ 1 billion worth of trade, which is about $250 million. That was the retaliation by India. This is still hanging over the relationship and it is something for the two countries to discuss and resolve. The second piece is the GSP which is the generalized system of preferences. It’s a mechanism through which the US permits developing countries of the world to export certain goods to the US on a duty free basis. Indian exports to the US roughly about $5.6 billion worth of goods on a duty free basis. The US took a look at this and started to make certain claims about India’s non market behaviour. One of the criteria for the GSP system is that the US government has to certify you are a market player. The effect of withdrawal of the GSP is essentially about $5 billion worth of trade but one should keep in mind that the tariff that India pays is in the 3-5 per cent range which means $150 or 200 million. Furthermore, that’s not paid by India. It’s paid by whoever is importing from India.
IANS: How would you suggest non-economists, commoners understand the elusive nature of a deal?
Pravin Krishna: First of all, in any economic relationship, especially a relationship with some type of disconnect, some controversies and anxieties keep on happening. This is just part of life. The only thing that is different today is that the Trump administration has taken a more aggressive position on international trade and has set aside geopolitical considerations to some extent. It’s not about whether we are friends or not, their attitude is that we are going to table our issues and we have some questions. This is very much part and parcel of economic engagement with other countries and disputes like these will arise. Now how does one resolve the trade disputes that have begun? Of course it has to take place by discussion and negotiation between countries but let’s not forget that that there is also a multilateral process which is the World Trade Organization which has rules of international trade and we have recourse to that. That is a slow process. Between direct pressure, the WTO and the fact that retaliatory possibilities exist, I believe some kind of understanding will be reached. If an understanding is not reached, these are manageable scenarios.
IANS: Whenever a trade deal happens and in whatever form, who does it help more?
Pravin Krishna: In general, the larger, more powerful country has an advantage, because it’s a bigger market and by shutting down the market to you, they are essentially imposing a greater cost than you might impose on them. In the context of the US trade dispute with the Chinese, both sides were essentially trying to show their strength. However, India is powerful in its own right. It has long experience in terms of negotiation with the US and the World Trade Organization. India is not considered a country that rolls over easily. The reputation in Washington is that India is a tough and difficult negotiator. And in this particular setting, the size of the dispute is quite small, in the larger context. On the margins, there may be some element of power dynamics playing itself out, but I have no doubt that the US trade representative and Indian negotiators will do their jobs very well.
(Nikhila Natarajan can be contacted at @byniknat)