Is US’s 12.5% additional tariff going to be a big blow to Indian exports? Is a new crisis looming over the India-US trade deal, which could derail the talks? Will textile, pharma and engineering sectors suffer the most? Can the next step of Trump administration after Section 301 investigation become a bigger challenge for India?
US India Trade Deal: On one hand, a three-day high-level meeting is going on in New Delhi to finalize the long pending bilateral trade agreement between India and America, on the other hand, a news from Washington has given sleepless nights to the Indian market and the government. The Trump administration has once again shown a tough stance and made a shocking proposal to impose additional duty of up to 12.5% on the import of Indian goods. This new development has created a lot of suspense and tension in the ongoing trade negotiations between the two countries.
Why did India come under target?
The Office of the US Trade Representative (USTR) has included India in the list of 54 countries and economies accused of failing to effectively prevent imports of products made with forced labour. According to USTR’s Section 301 investigation, if a country allegedly does not take adequate steps to prevent trade in such products, it may be subject to additional duties. Along with India, many big US partners like Japan, Britain, Australia, Singapore, South Korea and Saudi Arabia are also included in this list.
Serious allegations of ‘forced labour’ and USTR blacklist
At the root of this entire controversy is a recent investigation report by the US Trade Representative (USTR). The Office of the United States Trade Representative (USTR) has released the findings of its investigation into nearly 60 cases under Section 301 of the US Trade Act of 1974. In this report, 54 economies of the world including India have been seriously accused of failing completely to stop the import of goods allegedly made through ‘forced labour’.
Which other countries came under target along with India?
USTR Ambassador Jameson Greer defended the move, saying that American workers have to compete on an “uneven playing field” because of goods made with forced labor globally, which will no longer be tolerated. However, India is not alone in this list, America has also put its very close allies like United Kingdom, Japan, Australia, South Korea, Singapore, Israel and Saudi Arabia in the dock.
Dual tariff formula: Which sectors of India will be hit?
Under this new proposal of USTR, two types of additional tax slabs have been prepared, which are no less than a big blow for Indian exporters:
- 10% additional duty: It will be imposed on countries that already impose some restrictions on forced labor or have committed to stop it through mutual agreements.
- 12.5% additional duty: This heavy penalty will be imposed on countries whose security standards and measures are not found to be adequate or effective as per US standards.
India’s three largest export sectors – textiles, engineering goods and pharmaceuticals – will be worst affected by the implementation of this additional tariff. Due to increase in taxes, Indian goods will become expensive in the American market, which may lead to a huge decline in the country’s export volume. Although USTR has also proposed a separate quota for textiles and clothing, the threat is not yet completely averted.
Historic decision of ‘Supreme Court’ and India’s ‘Plan-B’
Amidst this entire trade war, a major decision of the US Supreme Court has also come out recently, which canceled some big tariffs previously imposed by the Trump administration, saying that it is mandatory to have a strong ‘legal basis’ for imposing the tax. This decision has created a huge uncertainty regarding US trade policies, which Indian negotiators can take advantage of.
On the other hand, India has also started laying its strategic chessboard to reduce its dependence on the American market. India has achieved almost ‘zero-duty access’ to a large part of its exports by signing a Free Trade Agreement (FTA) with the United Kingdom (UK). Apart from this, India is now actively signing agreements with the European Union (EU) and other countries. Now it remains to be seen how Indian officials penetrate the maze of this 12.5% tariff of the Trump administration in the ongoing three-day meeting in New Delhi.