After months of simmering trade tensions between the United States and India, President Donald Trump is following through on his threat to punish India for being what he called “a very high-tariff nation.”
On Monday, Trump notified Congress that the United States intends to end the preferential treatment for a host of Indian goods that now enter the country duty-free. The changes will not take effect for at least 60 days.
In a letter, Trump said India would no longer receive benefits under the Generalized System of Preferences, or GSP, which was set up to promote trade from developing countries. Turkey’s benefits under the program will also end.
The move marks the first time the Trump administration has targeted what it views as unfair trade practices by India, a country it has sought to cultivate as a strategic partner. Last year, Trump initiated a trade war with China but now the two countries are reportedly nearing a deal to de-escalate the dispute.
Trump has made no secret of his frustrations with Indian trade policy and has fixated on the duties the country charges on Harley-Davidson motorcycles. On Saturday, during a speech at the Conservative Political Action Conference, he once again raised the topic.
“When we send a motorcycle to India, they charge 100 percent tariff,” Trump said. “When India sends a motorcycle to us, we charge nothing.” The claim was found to be true, although Harley-Davidson has largely bypassed tariffs by assembling its bikes in India.
The decision to end India’s preferential treatment comes after months of squabbling between the United States and India over trade. Trump has complained about India’s high tariffs on American goods and about the U.S. trade deficit with India, which stood at $27.3 billion in 2017, according to the Office of the United States Trade Representative.
Meanwhile, India recently announced changes to its e-commerce rules that are considered detrimental to American giants such as Walmart and Amazon. (Amazon founder Jeff Bezos owns The Washington Post.)
India did not assure the United States that it would “provide equitable and reasonable access to its markets in numerous sectors,” the USTR said in a statement announcing the decision to end the preferential trade status.
So far, India’s response has been muted. Indian Commerce Secretary Anup Wadhawan said the decision would not have a “significant impact” on exports, according to Asian News International. The “economic value of GSP benefits are very moderate,” he said.
India is the GSP’s biggest beneficiary and exports about $5.6 billion in goods to the United States under the program, including motor vehicle parts, precious-metal jewelry and insulated cables. Just over 10 percent of India’s current exports to the United States benefit from the program. The United States remains India’s top export partner, receiving more than $48 billion in goods from the country in 2017.
In April 2018, the United States announced that it was reviewing India’s status under the GSP program. Later in the year, efforts by the two countries to resolve long-running trade issues faltered.
Monday’s punitive step is “perfectly aligned with this administration’s outlook,” said Richard Rossow, a senior adviser at the Center for Strategic and International Studies in Washington. “By and large, I think India knew this was coming.”
Rossow noted that despite ongoing trade frictions, U.S. exports to India grew by over 25 percent in the last 12 months. “If ultimately a trade war starts to impede what actual companies are doing, then I’ll get worried,” he said.