Why in the News?
The 25% tariff plus penalty imposed by U.S. President Donald Trump on Indian imports has brought renewed attention to the strain in India-U.S. trade relations.
Why did the U.S. impose a 25% tariff on Indian imports?
- High Tariff and Non-Tariff Barriers by India: The U.S. accused India of maintaining high import duties and regulatory restrictions that limited American market access. Eg: Trump repeatedly criticized India’s high tariffs on U.S. goods like motorcycles and dairy products.
- Geopolitical Frustration Over India-Russia Ties: India’s continued energy and defense cooperation with Russia, despite U.S. pressure, triggered punitive action. Eg: Trump expressed displeasure at India’s oil imports from Russia, linking them to trade penalties.
- Failure to Reach a Mini-Trade Deal: Repeated delays and stalemates in talks over a limited trade agreement led to frustration in the U.S.
What stalled the India-U.S. mini-trade deal?
- India’s Reluctance to Lower Tariffs: India resisted U.S. demands to reduce import duties, especially in agriculture and dairy, to protect domestic interests. Eg: India declined to open its dairy sector to U.S. exporters, citing religious and cultural concerns over feed practices involving animal blood, which conflict with Indian dietary norms.
- Unclear Negotiation Timelines: The deal lacked a defined timeline, and momentum stalled due to shifting priorities on both sides. Eg: U.S. Trade Representative Jamieson Greer stated the deal needed “some more negotiations,” while India stopped referencing the mini-deal, signaling disengagement.
How do India’s farm and dairy policies hinder trade talks?
- Protection of Domestic Farmers: India maintains high tariffs and import restrictions to shield small and marginal farmers from foreign competition. Eg: India imposes import duties of up to 100% on dairy products, making it difficult for U.S. exporters to access the Indian market.
- Cultural and Religious Sensitivities: Indian regulations emphasise vegetarian feed practices, which clash with Western livestock farming methods. Eg: India rejected U.S. dairy imports because American cows are often fed blood meal, violating Hindu dietary norms.
- Subsidy and MSP System: India’s Minimum Support Price (MSP) and subsidy policies create a non-level playing field, raising concerns about fairness among trade partners. Eg: The U.S. has objected to India’s public stockholding of food grains, which they claim distorts global agricultural trade.
How do India-Russia ties affect India-U.S. trade relations?
- Strategic Autonomy in Foreign Policy: India maintains a non-aligned stance, continuing strong ties with Russia, especially in defence and energy sectors, despite Western pressure. Eg: India’s purchase of the S-400 missile system from Russia triggered U.S. concerns under the CAATSA sanctions regime.
- Energy Trade with Russia: India increased crude oil imports from Russia due to discounted prices amid the Ukraine conflict, which contradicts U.S.-led sanctions. Eg: In 2023, Russia became one of India’s top oil suppliers, raising questions in Washington about India’s commitment to Western-led efforts.
How can India balance sovereignty with export interests? (Way forward)
- Assert Strategic Autonomy while Building Economic Alliances: India must uphold its sovereign right to choose partners (e.g., Russia) while diversifying export markets and enhancing trade ties with nations like the U.S., EU, ASEAN, to reduce dependency and mitigate tariff risks.
- Pursue Issue-Based Bilateral Negotiations: India can engage in sector-specific negotiations that safeguard sensitive areas (like agriculture) while offering market access in others (like pharmaceuticals or services), thereby balancing domestic priorities with global trade expectations.
Mains PYQ:
[UPSC 2018] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India?
Linkage: The article is directly related to impact of “protectionism” on India’s macroeconomic stability. The “25% tariff ‘plus penalty’ on imports of Indian goods” by the U.S. is a clear example of protectionist measures in world trade. The article explicitly states that these tariffs place India at a “relative disadvantage”, directly relating to the “soured relations” and potential impact on India’s economic stability.
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