The Trump card

US President Donald J Trump has been quite vocal about the trade deficits that his country has, vowing to cut it down. In the wake of normalising the trade equation between the US and China – rolling back of US tariffs on at least $200 billion worth of Chinese goods – Washington has decided to terminate Turkey and India's participation in the Generalised System of Preferences (GSP) Programme. Following Trump's remark of India being a "very high tariff nation" and his consequential urge for a reciprocal tax, though not as high as India's, cites Trump's subtle move to cut the trade deficit that the US sustains. He conveniently handpicked India as an example for countries who were imposing high taxes on American products, asserting how it was now their turn to impose a reciprocal tax. Having pushed for the Reciprocal Trade Act in January, Trump brought up India's duty on American Whiskey while slashing the duty on Harley Davidson motorcycles down to 50 per cent from 100 in a two-minute telephonic conversation. According to the United States, India's tariff regime has "pronounced disparities" between its bound rates and its most favoured nation (MFN) applied rates. It asserts that India's average bound tariff rate (customs duty rates committed by a country to other nations) is 48.5 per cent against MFN average applied tariff of 13.4 per cent. Despite healthy relations between the two countries, Trump's subtle trade attack is backed by his reasoning of India's failure of GSP's criteria. Trump decided to scrap $5.6 billion trade concessions to India under GSP purely due to New Delhi's failure in providing Washington with "equitable and reasonable access" to its markets. India, being the largest beneficiary of the GSP Programme which dates back to 1970s, will have to bear the brunt of this. Interestingly, New Delhi does not see any significant impact on trade due to this development. Under the United States GSP programme, certain products can enter the United States duty-free if beneficiary developing countries meet the eligibility criteria established by its Congress. The criteria include providing the US with equitable & reasonable market access (which India hasn't according to them), Protecting Workers' right, and combating child labour. The primary aim of the GSP Programme is to help developing countries, particularly in sectors where the benefits can reach the poor. Trump's decision to terminate Turkey's participation from GSP comes from economic success and rising living standards that render Turkey uneligible for the programme. On paper, the withdrawal of GSP benefits seem detrimental to the development and trade requirements of India but numbers tell another tale. The total India-US trade for 2017 sits at $126.2 billion out of which the US had to accommodate a trade deficit of $27.3 billion. India's total export was $76.7 billion and ending GSP affects a mere $5.6 billion of it. It depends on the perspective whether this is a grave impact or a minor hitch – New Delhi opines on the latter. The US Trade Representative's Office said that the preferences will end in 60 days after the notification to the Indian government and Congress. Trump, however, will monitor India's commitment in meeting the GSP eligibility criteria following which he may change his decision. India sat on its decision to keep retaliatory tariffs out of the equation given the "cordial and strong ties" between the countries. India's assertion on the issue stressed on how meagre the actual benefit accrued from GSP was – $190 million. "Of the 3,700 products covered, India used the concession for just 1,784" mentioned Commerce Secretary Anup Wadhawan. This puts GSP as more of a symbolic representation of the strategic relations between the two nations rather than a preferential treatment having value. But that is not all that this Trump machination has to offer. Withdrawal of GSP benefits blemishes Modi-led government's track record adding to the Opposition's arsenal and potentially becoming an election issue given the upcoming general mandate. Trade ties with the US saw downfall since India's adoption of new norms on e-commerce, curbing internet retail giants Amazon.com Inc and Walmart Inc-backed Flipkart's business. Following that, New Delhi forced global card payments companies such as Mastercard Inc and Visa Inc to move their data to India and higher tariffs on electronic products and smartphones. Removing India from the GSP list is the biggest punitive action in terms of trade taken by the Trump administration to date and though India appears unconcerned, a US move rarely goes blank and ramifications might surface in time. If not, then the move may not at all be intended to do what it says and instead, there is something entirely different brewing in the President's head.