The India-U.S. discord over trade stems from a deep-seated desire of U.S. businesses to have a bigger footprint in the Indian economy. Discuss this statement in the context of present tariff war between India and USA.(250 words)

Mentor’s Comment

  1. Give a brief about India USA trade tensions.
  2. GIve reasons why the USA is pursuing such measures.
  3. Relate with USA’s intentions to have a bigger market share in India.
  4. Conclude suggesting ways to handle this crisis.

Economic relations between India and the United States are on a knife-edge after the U.S. took a series of unilateral actions against India’s exports, that began in 2018, followed by India’s recently announced retaliatory move of increasing tariffs on 28 products imported from its largest trade partner. As a result of these developments, India has become the Trump administration’s most significant target after China.

Following are the major Impediments in trade relations
1. Tariff issues: US under Trump regime has taken different position as compared to previous stands in trade negotiations. US President called India “the tariff king” and raised issues with India like:
2. Indian motorcycles imported into the US tariff free while US motorcycles imported to India face high tariffs.
3. Intellectual property rights: India has been placed in Priority Watch List of the USTR’s Special 301.
4. Subsidies issues:
 Subsidies given by some US states to local renewable energy producers.
 US is against the Minimum Support Price (MSP) regime of India and accuse India of violating WTO subsidies norms and limitations.
5. Visa related tensions: India is the largest beneficiary of H1-B visa scheme of US. But US in recent times has increased visa fees for H1-B applicants and cut their quotas. This has been detrimental for the interest of Indian IT companies. India has raised concerns on this issue.
6. India – US have been also engaged WTO in dispute resolution: India dragged the US to the WTO dispute settlement mechanism over the imposition of import duties on steel and aluminium.
7. Also, India and US are at loggerheads on subsidies and Domestic Content Requirement (DCR) provisions to renewable energy sector in their respective countries.

But, the bilateral ties that are largely driven by technology transfers, arms sales, joint exercises, and foundational agreements on defence, this amounts to a deep but one-sided security relationship, and not a robust and multifaceted strategic partnership. That’s why the United States seek to greater market access and the removal of trade barriers in its economic relationship. India’s trade and investment policies that American businesses find detrimental to their interests implies the following-

1. Tariff and Non-tariff barriers like the 50-60% duties on motorcycles and cars and 150% duties on American liquor is imposed.
2. India’s price caps on coronary stents and other medical devices.
3. The U.S. must understand the cultural differences over the labelling of non-vegetarian dairy products.
4. Two other issues that the US side has specifically raised during the latest round of negotiations are the “treatment of Walmart after their acquisition of Flipkart”, and the problems on data localisation reportedly faced by companies such as MasterCard and
5. Trump administration decided to withdraw GSP benefits for Indian exports in retaliation for Indian tariffs that the U.S. deemed to be prohibitively high.

However, The U.S. must see that average tariffs imposed by India (13.8%) are not much higher than those levied by economies such as South Korea and Brazil. In addition to this
 The U.S.’s position wherein it continues to defend its high levels of agricultural subsidies which are used for lowering commodity prices to levels at which no other country can have access to its domestic market. Thus, the U.S. does not need tariffs to protect its
agriculture; it uses subsidies, instead.
 The WTO also informs India that the U.S. also uses very high tariffs on tobacco (350%), peanut (164%) and some dairy products (118%).

“Great friends are bound to have disagreements”. However, the basis of the discord lies in the way the U.S. has been targeting India’s policies, disregarding the rule of law. Under these circumstances, the Government of India would have focus on two fronts:
 To remain engaged with its largest trade partner and
 To also engage actively with the global community to make the U.S. understand the imperatives of a rules-based trading system.

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4 years ago

US removed India from being beneficiary to Generalized System of Preferences citing India’s inability to provide equitable and reasonable access to the markets of India. Indian exports to the U.S. worth $ 5.6 billion are covered by GSP, although India gets only $ 190 million in tariff savings. Nevertheless, the program impacts crucial Indian sectors including textiles, leather, engineering goods, gems and jewellery.The US has had concerns over access to India’s dairy and medical devices market.combined with Indian tariffs in ICT and India’s policies on data localisation and FDI in India’s e-commerce space have caused the trade relationship to go downhill. India can’t give tariff cuts only for the US, as such concessions have to be given on the most favoured nation basis under the global trade rules, China too will benefit from the incentive.India is grappling with a ballooning trade deficit with China and such a move will further hurt Indian interests and Make in India program meant to boost India’s reeling manufacturing sector..
India is expected to become the most populous country by 2050 combined with a fast growing economy, implies huge base of consumers, making businesses desirous of expansion in the Indian market.
The US move to put tariff pressure comes after repeatedly flags on tariff and non tariff barriers to its exports to India and are most likely meant to put downward pressure on tariffs levied on Indian. Retaliatory tariffs by India on 28 US products some as high as 70% were imposed.
The G20 summit at Osaka saw positive talks on trade and technology despite ongoing issues which indicates despite the differences middle ground is feasible. Any further escalation of tariffs can hurt our interests therefore it is important to keep engaging with the US at both multilateral and bilateral levels to keep track of the situation while negotiating to restore the concessions without conceding ground.

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4 years ago


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4 years ago

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