The Art Of The No Deal

Months of speculation over the India-US trade deal ended last evening with a blunt announcement from Trump on Truth Social. Starting Aug 1, all Indian goods entering US will face a 25% import tariff, plus an additional penalty. This new tariff regime will apply even to goods already in transit. An apparel item that previously attracted a 12% tariff will now face 12% + 25% + a-yet-to-be-disclosed penalty. Trump gave four main reasons for the new tariffs on India: high Indian tariffs, trade barriers, and India’s continued buying of oil and military equipment from Russia. His justification does not fully hold up to scrutiny. &#55357;&#56628; First, Trump claims that US does little business with India because Indian tariffs are too high. While it’s true that India’s average tariff rate is around 17%, which is higher than the US average, Indian tariffs are fully within the limits India committed to at WTO. In contrast, the new US tariffs violate its own WTO obligations. Moreover, India’s high tariffs alone do not explain trade imbalances. If that were the case, China wouldn’t be exporting over $120bn worth of goods to India. The real issue is competitiveness. US simply does not produce many globally competitive goods outside of a few sectors like agriculture, petroleum, coal, and high-end tech products.A closer look at US exports to India proves the point. Of the $45bn worth of goods US exported to India last year, nearly $20bn came from just a few items – petroleum, coal, petroleum coke, diamonds, gold and scrap materials. These are commodities, not high-value manufactured products. US runs trade deficits with most countries because it imports more and doesn’t need to balance trade in the traditional way. It can print dollars, a luxury no other countries have.&#55357;&#56628; Second, Trump claims that India has the most “strenuous and obnoxious” non-tariff trade barriers. Non-tariff barriers (such as food safety rules, environmental standards and data regulations) are used by every country, including US. These are rarely deal-breakers. Countries engage in discussions to understand each other’s regulatory concerns. But Washington often dismisses India’s concerns as protectionist, even as it demands wide-ranging concessions. Such as access to India’s govt procurement market, weaker patent protections, relaxed e-commerce rules, free cross-border data flows for US tech firms, and permission for firms like Starlink to operate in India’s satellite internet space. It objects to India’s ban on butter made from cows fed with the meat of other cows, calling it unscientific and ignoring our sensitivities. &#55357;&#56628; Trump says India purchases most of its defence equipment from Russia. As a large and sovereign country, India reserves the right to decide its defence partnerships. Over the past 60 years, Russia has remained a consistent and trusted defence partner for India, while US has often aligned with India’s rivals, especially Pakistan. US may be fast losing a trusted friend in Asia-Pacific and an important Quad member.&#55357;&#56628; Fourth, Trump criticises India (and China) for buying large quantities of oil from Russia at a time when the West wants to isolate Moscow over the war in Ukraine. India, being an oil-scarce country, needed to buy affordable oil to manage its energy needs. Like many other countries, India turned to discounted Russian crude to save on import bills. This was a practical economic decision. While Trump’s announcement has caused concern, it’s important to examine how India actually compares to the countries that have signed trade deals with US. EU, UK, Japan, Indonesia and Vietnam deals follow a consistent pattern. Washington imposes elevated tariffs on imports from these countries above standard Most-Favoured Nation (MFN) rates. For example, UK now faces a 10% US tariff, while EU and Japanese goods are taxed at 15%, Indonesian exports at 19%, and Vietnamese goods at 20%. So, India’s 25% tariff rate is higher, but not drastically worse than what others are already paying. In return, these partners have agreed to eliminate most tariffs (often completely), including on sensitive sectors like agriculture. More importantly, deals include massive investment pledges and guaranteed purchases. Japan has committed to invest $550bn in US; EU, an even larger $750bn, focused on American energy, infra and manufacturing sectors. These countries have also agreed to buy large volumes of US oil, gas and arms, directly supporting American industries. Further, they have promised to ease regulatory hurdles for US agricultural goods and automobiles, often diluting their own domestic standards in the process.Viewed in this context, India’s position does not look alarming. India isn’t alone. Over 90 countries are facing similar US pressure for one-sided trade deals, and many have yet to conclude any agreement. With over 700mn Indians dependent on agriculture – far more than China, EU, Japan or South Korea – India cannot afford to open its farm sector to heavily subsidised US imports that could wreck rural livelihoods. A deal with US may still happen, but only on terms that safeguard core national interests. For now, credit is due to India’s negotiators, who pursued the deal in earnest but stood firm in defending the country’s red lines.The writer is an expert on trade & tech issues