India has more to lose in a trade war with US

India has been dragged into a trade war unleashed by US President Donald Trump, who imposed a 25 per cent tariff on steel imports and 10 per cent on aluminium. India, after taking a hit of around $241 million on its exports of these items, will raise duties on about 30 US imports, including certain iron and steel goods and even fruits, vegetables, almonds and apples. India has also informed the World Trade Organisation about its move. These moves, however, seem insignificant compared to the total US exports to India, amounting to a massive $1.3 trillion. India may lose much more than the US in this trade war as US exports are barely 12 per cent of its GDP. India, on the other hand, is the largest exporter to the US after China. India was earlier on the US radar with Mr Trump’s grouse over India’s imposition of 50 per cent duty (earlier 100 per cent) on Harley Davidson bikes.  There were just 84 of these expensive bikes sold in India last year. The US is also reviewing the General System of Preferences that India enjoyed after the US dairy and medical equipment sectors complained over not having easy access to India’s markets. They are  specially irked by price controls on items like stents.

The larger question, of course, is the risk world trade has been exposed to. WTO itself has become nearly  irrelevant as most nations have shown a preference for bilateral trade agreements. These are faster and less complicated. What is interesting is that the US has always had a grouse over India being categorised as a less developed country. In Mr Trump’s view, India is no longer an LDC as its per capita  income is over $1,000 a month. He says India should therefore end the subsidies it gives its exports, particularly in agriculture and the electronics hardware technology parks scheme. The US is significantly against India’s assistance to the farm sector as the US farm lobby is very strong and wants India to open its markets to US farm exports. The US even held up the WTO’s Doha Round on the issue of agricultural subsidies, like the minimum support price for wheat and rice, which it says is well over 60 to 70 per cent of the limits set by the WTO agriculture agreement.

World trade contributes to world peace and countries trading with each other are unlikely to go to war with each other. More important, it helps economies which depend totally on exports and imports. There are countries with an abundance of resources and need to monetise them. This can be achieved only through trade. The export-import sector also provides jobs and other benefits. In India, for instance, garment exports of nearly $2 billion annually from Tirupur is among the biggest employment creators in the region.