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India

US-India trade war kicks off; SMEs, manufacturing industry to be affected

Mar 6, 2019 by The Passage Team
US-India trade war kicks off; SMEs, manufacturing industry to be affected

Source: Tehran Times

After setting off the US-China trade war last year and nearing a deal recently to de-escalate the dispute, US President Donald Trump is now targeting the next big consumer market — India. Trump on Monday notified the US Congress to end preferential trade terms with India that allows duty-free entry of exports worth USD 5.6 billion to the US.

The Indian government however downplayed the issue. Trade and commerce secretary Anup Wadhawan said the withdrawal of Generalized System of Preferences (GSP) benefits to India will have minimal impact. The US government has also been asking India to open up the agri and dairy sector, and remove price caps on pharma products such as coronary stents and knee implants.

This comes in the backdrop of changes to India’s e-commerce rules which favour local players and have hurt American giants such as Walmart and Amazon. Amazon had invested over USD 4 billion in its India business, while Walmart bought Indian e-commerce giant Flipkart in a USD 16 billion deal in 2018. Both companies had lobbied hard with the Indian government to relax e-commerce rules. However, pushing the interests of offline retailers, who form a large voter base, the ruling BJP government didn’t budge.

India has denied market access to US dairy products since 2003 and it regulated prices of stents and knee implants last year. India is willing to ease norms on the dairy sector. However, with elections around the corner, it is not willing to compromise on the affordability of medical devices.

Trump has also reportedly been unhappy with Indian duties on US goods, particularly on Harley-Davidson (HOG) motorbikes and imported whiskey. “India is a very high tariff. They charge us a lot of tariffs,” he had said at a White House event last year.

Ending the preferential trade agreement would mean that about 1,900 products exported by India to the US will be hit. According to a Reuters report, India’s top duty-free exports to the US in 2017 were motor-vehicle parts, ferro alloys, precious metal jewelry, building stone, insulated cables and wires, pharmaceuticals and textiles.

While India’s stock market didn’t react negatively to the news, the tariff restrictions may have an impact in the months to come.

The US-China trade war, on the other hand, has been favourable to India because it prompted investments to flow into Indian startups. Ankur Pahwa, partner and national leader, e-commerce and consumer internet, EY LLP, said, “The US, and more recently China, have been investing heavily in startups in India as they have recognised the untapped potential of Indian markets which few other countries can rival.”

Chinese investments in India have risen at a compound annual growth rate of 23% to reach USD 1.7 billion between 2000 and 2018 (as of March). Chinese companies account for 42% of investments received under Invest India, which helps investors looking for investment opportunities and options in India, according to a KPMG report.

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