The US Wants India To Cut Tariffs – Reuters

The United States (US) is pressing on India to cut tariffs after it announced a higher import tax on over 40 items, including smartphones, television sets, and auto components, in the Union budget released February this year.

Reuters’ reporting revealed that India’s high trade barriers were “holding back economic ties” between the two countries that have seen bilateral trade rise from $20 billion in 2001 to $115 billion in 2016.

When US President Donald Trump called out India for its duties on Harley-Davidson motorbikes, Prime Minister Narendra Modi reportedly responded by having duties slashed for high-end bikes from 75 per to 50 per cent. But Trump was none too happy, said the Reuters report, as Indian bikes sold in the US faced no duties.

This could lead to a “reciprocal tax”, Trump had said then, in a global economic climate that appears to be turning protectionist.

India would argue that their move to raise duties fits within this growing protectionist trend visible among the major economies today, but this discounts the fact that India is already among the more protectionist major economies. According to the World Trade Organization (WTO), India’s average tariff rate is 13.5 per cent; compare this to the 3.3 per cent in the US and 9.9 per cent in China.

The Indian government has a clear purpose for raising tariffs. It hopes to provide, with this move, a fillip to local industry and create the lakhs of jobs necessary for the young men and women entering the workforce every year. It also seeks to raise the manufacturing sector’s share in the GDP, currently at 15 per cent, to at least a quarter. These aims fall broadly under the flagship ‘Make in India’ programme.

There is, however, another dimension to the raising of import duties. Finance Minister Arun Jaitley’s import tariffs may be less about protectionism and more about China, with whom India runs a significant annual trade deficit of over $50 billion. The tariffs can therefore be seen as a “China tax”.

In addition, the money that China is making out of this arrangement may even be currently put to use against Indian interests. “The money China is making by exporting to India is more than enough to finance all its infrastructure plans in Pakistan (the China-Pakistan Economic Corridor, which is passing through Indian territory in Pakistan-occupied Kashmir). We are paying them to invest in our enemies,” Swarajya editorial director R Jagannathan writes here.

These tariffs may work, argues Jagannathan, but only if they are a short-term revenue measure and if the government has a more comprehensive game plan to achieve its objectives.

But until then, India will have to come up with a response to US’ demands. Will it lower the tariffs?

Read More:

Jaitley’s Import Tariffs Are A China Tax: Less About Protection, More About Self-Defence

Why Higher Import Tariffs Cannot Be A Standalone Measure For Make In India