India- US Trade Surplus Shrinks, Trump Administration’s Action Unfortunate

The Trump administration had said that the absence of ‘equitable and reasonable’ market access from New Delhi as the reason to withdraw the duty benefits on annual exports worth $5.6 billion under the so-called Generalized System of Preferences (GSP) by May, but latest data shows India’s goods trade surplus with the US actually went down for a second straight year through 2018.

According to the US government data, New Delhi’s trade surplus with Washington eased to $21.3 billion in 2018 from $22.9 billion in 2017. In contrast, China’s trade surplus with the US widened further to a record $419.2 billion last year from $375.6 billion in 2017, despite the tariff war between the world’s top two economies. The drop in India’s trade surplus is important, given that the US’ overall goods trade deficit zoomed further in 2018 to $878.7 billion from $795.7 billion a year before.

India’s surplus with the world’s largest economy stood at $24.4 billion in 2016. In fact, India is among the very few countries whose trade surplus with the US has been falling — something that the Trump administration has been wanting to ensure.

Similarly, the American goods exports to India jumped almost 29% to $33.12 billion in 2018 from $25.7 billion in the previous year.

“The massive rise in its exports suggests that India has been more than fair in granting market access to the US. In fact, under a trade package that was being negotiated until recently, India had gone more than half the distance to address the American concerns,” said a senior government official. Given the backdrop, the GSP withdrawal is only ‘unfortunate’, said the official.

The government, however, won’t resort to any ‘knee-jerk’ reaction but will take an informed decision after taking a holistic view of the matter.

India will remain the world’s fastest-growing large economy in the coming years, generating opportunities for US businesses in sectors ranging from defence and retail to oil. The commerce ministry has said India is a thriving market for US services and e-commerce companies like Amazon, Uber, Google and Facebook with billions of dollars of revenue. In fact, despite the price control, American companies like Abbott and Boston Scientific dominate the medical equipment market in India, while Amazon and Uber remain the top players in their segments.

Under the GSP, 1,784 products — ranging from certain engineering goods and organic chemicals to textiles — are exported from India to the US at zero duty. However, these products typically attract low duties there (for instance, the engineering goods and textiles covered under the GSP typically attract less than 3%). Nevertheless, some leather products, processed food items and handlooms could see some impact, which will impact small companies and individuals that produce them.

Stressing that India responded to the US requests on sticky issues positively, the commerce ministry said on Tuesday that New Delhi had proposed to replace the current price cap policy for coronary stents with a ‘suitable trade margin regime’ to address American concerns. As for the US demand to scrap/cut tariff on ICT products, including mobile phones costing over Rs 10,000, New Delhi had conveyed to the US that any such across-the-board cut would help only third parties (like China and Korea) and was willing to lower duties on those products where it would benefit the US. India had also offered to simplify certain certification procedures for dairy imports from the US.

“Acceptability of US market access requests related to products like alfalfa hay, cherries and pork was conveyed…On telecom testing, India was willing to consider discussions for a Mutual Recognition Agreement, ” the commerce ministry said.