Why India Must Speak on US Tariffs
When Donald Trump had slapped an additional 26% duties on US imports from India, he had claimed it was “reciprocal”. He condescendingly said that, as per his formula, he should actually have levied 52%, but he was being “kind” to reduce it by half. While he has paused that for now, it is unfortunate that the Indian government has not only not protested against such gall and nonsense, but it has not even logically explained why the additional import duties are unjustified.
The truth is, if you go by Trump’s logic, it is India that was being “kind” to the US in allowing them so much access to our market. Consider the facts.
Last year, India “allowed” imports of $42-billion worth of US goods into India. That amounts to about 1.1% of India’s $3.9-trillion GDP. So US businesses have participated and benefited from 1.1% of India’s economy.
On the other hand, in the same period, US imported $87 billion of Indian products, amounting to just 0.3% of their $29-trillion GDP. So Indian businesses participated in just 0.3% of their economy.
US enjoys 1.1% of our economy, and India gets just 0.3% of theirs? How is that “fair”?
If India should participate at the same share of the US economy as US businesses do India’s, then our exports to US should be $300 billion, or about $210 billion more than we do now.
Indeed, it is India which is being very “kind” to the US to allow its businesses to participate in such a high share of our economy, compared to what they have accommodated ours. Especially when we are far lower in per capita income than they are: we need to allow our industries and businesses a bit more protection, so that they can grow and get better economies of scale.
Once we are also a $29-trillion economy, surely we will “kindly” allow the US a 0.3 % share, just as they have given us today.
The Narendra Modi government appears to be caught up in Trump’s bullying tactics, instead of taking a more tough, and logical stance. We should be demanding more access for our products to the US. We should be saying there is no reason why we should not restrict US imports more by slapping a counter-"reciprocal" 26% on their exports to us. And we should do that, if the duties on our products is not withdrawn.
They say a crisis is a terrible thing to waste. We should be using the current crisis to nimbly engage with other governments to lower our barriers to each other. All these countries will welcome a dialogue and mutually favourable trade agreements now. Every country, region, and trade bloc needs to be engaged with crisis-mode urgency to develop programmes to recover the potential loss we may have from the US and to help them do the same. These ideas then need to be actioned in a time-bound way, and mutually reviewed frequently to see how both sides are gaining.
That way, we recover what we may lose from the US with Trump's tariffs and we broad-base our trading network as well.
This will lead to some distress in our industries. We need to be prepared to deal with that. But it will also give us many opportunities in industries where we are competitive.
India has historically been prepared to bear pain for long-term interests. We did this with our peaceful battle for Independence and again in the fifties through to the seventies, when we stayed non-aligned, instead of taking the easier route to align with either the American or Soviet blocs. We decided to and became a nuclear power in the nineties, even when we knew we had to face severe sanctions that affected our growth.
Bearing short-term pain for our principles and for our self-respect is not new to us. And it has served us well. And this has been true, whichever party has been in power.
What is new is the silence of this Narendra Modi government in the face of such bullying. This government must demand openly that the US liberate more trade from India rather than the other way around, so that each benefits from an equal share of the other’s economy.
I am not a believer in this kind of “reciprocal" protectionism. But this a trade war, and the rules of war are different. In such cases, we, as a nation, have to come together to show we will not be bullied, not be blackmailed, not succumb to arbitrary logic, and not yield to injustice. Trump can deal with other countries who might do that, but India is not one of them.
Prakash Nedungadi is former president of Madura Garments, with over 38 years of corporate leadership experience at Unilever, Procter & Gamble and the Aditya Birla Group. He is currently the state treasurer, Karnataka, for the Aam Aadmi Party. Views expressed are his own.
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