Opinion

Trump’s mini war with India

By Chad P. Bown for Peterson Institute for international economics (PIIE)

India has long been a challenging trading partner for the United States. And in the World Trade Organization (WTO), it has wavered between a begrudging participant and a full-scale obstructionist. Successive US administrations have tried to pry open its markets by offering trade concessions to get it to play by the multilateral rules, with limited success.

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President Donald Trump is now reversing course, as he has on most trade issues, seeking instead to punish India with tariffs. Since the beginning of 2018, his administration has increased duties on 14 percent of India’s exports to the United States. India has recently retaliated by slapping new tariffs on about 6 percent of US exports to India, including $600 million of almonds from California.

There are key parallels with the Trump-China trade war. The largest is skepticism that Trump’s escalation intends to fix problems in the trade relationship. Despite the obvious differences with China—that it is smaller both as a trade relationship and a tariff conflict—the worry is that this is just another excuse for the self-proclaimed “Tariff Man” to impose even more duties on yet another country.

POLICY ACTIONS—WHAT HAPPENED

The Trump administration undertook two separate trade actions before India felt compelled politically to raise tariffs on US exports.

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First were Trump’s tariffs on Indian steel and aluminum. On March 23, 2018, India was part of the first round of countries hit by Trump’s national security tariffs. Trump imposed tariffs of 25 percent on $761 million of steel and of 10 percent on $382 million of aluminum imported from India. Combined, these tariffs covered roughly 2.3 percent of India’s exports to the United States in 2017. India’s exports of steel products have fallen by 46 percent in the 12 months since the tariffs were imposed.

The small amount of India’s steel trade hit by Trump’s tariffs provides a misleading picture of the damage they are likely to cause. India is the world’s third largest steel producer after China and Japan. And, like China, India’s steel exports to the United States were small because they had already been curtailed prior to the 2018 tariffs through a series of antidumping cases. New duties there had already accumulated to cover almost 70 percent of India’s steel exports to the American market.

Many of the world’s top multinational steel firms have Indian connections, including ArcelorMittal, Tata, JSW, and Steel Authority of India. Steel operations globally with ties to India were affected not only by Trump’s steel tariffs, but also follow-on restrictions imposed by the European Union, as well as potentially by Canada, Egypt, and others, that threaten to further segment the global steel market.

India filed a formal WTO dispute against Trump’s steel and aluminum actions in May 2018. It also announced how it would retaliate, following the lead of Canada, the European Union, China, Mexico, Turkey, and Russia, all of whom implemented tariffs immediately in response to Trump’s national security actions. India’s first official WTO notification indicated it would impose tariff rate increases on a list covering $10.6 billion of US exports. It later revised its notification in June 2018, which covered only $1.4 billion of US exports—but at higher rates.

Yet, despite its announcements, India did not follow through with retaliation in 2018, probably in part because it was simultaneously trying to smooth over other areas of conflict.

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