Postponing the levy of retaliatory duties and giving some room for resolution of the matter is tactically the right thing to do
Last month, when India confirmed to the World Trade Organisation (WTO) its plan to slap retaliatory duties on 20 items from the US by June 21, it could have qualified as a proud moment for policy-watchers in India.
The country was finally mustering up courage to take some concrete action against the Trump regime’s bullying, and intended to punish it for wrongfully penalising its aluminium and steel producers. Finally, however, things turned out a little different. The Finance Ministry did come out with a notification listing retaliatory import duties on various items imported from the US, but actual implementation was put off by a month-and-a-half to August 4, 2018.
Although the postponement of duties was anti-climactic, diplomatically it was an astute move. A team from the US Trade Representative’s office was to visit New Delhi in less than a week’s time to discuss ways to bring down trade tension between the two countries. Imposing retaliatory duties at that point might not have set the right tone for the meeting.
It is easy to see that it was totally unfair on Washington’s part to impose higher duties on Indian steel and aluminium without any provocation from the country and treating it at par with large exporters of the metals to the US such as China, Russia, the EU and South Korea.
Adding insult to injury was the fact that the duties were imposed under the garb of national security concerns when India has only tried its best to intensify bilateral security ties. Therefore, taking action against the unilateral unfair trade measure and hitting back at American products with retaliatory duties was totally called for.
However, it is hard to ignore that the US happens to be one of the largest export destinations for India. Despite exports from the US to India rising faster in 2017-18, India still has a robust bilateral trade surplus. If there is even a slight possibility of resolving the tariff issue amicably with the US, economic sagacity dictates that India should indeed give it a try.
Seen in this light, postponing the imposition of retaliatory duties and giving some room for resolution of the matter to the visiting team was tactically the right thing to do.
The same logic could be used to justify India’s last-minute decision not to impose retaliatory duties on American iconic bike Harley Davidson. Since imposing duties would not have amounted to much revenue because of relatively low imports of the bike, the Centre thought it better not to unnecessarily provoke the US President who has been protecting the interests of the bike maker with zeal.
What is important here is that despite the placatory gestures India went right ahead to show the US that it means business by putting the effective date of implementation of the retaliatory tariffs on the notification itself. Unless India is convinced about rolling back the decision, the higher duties on imported items from the US will be triggered on August 4.
What India needs to do now is to singularly focus on convincing the US to roll back the additional duties imposed on Indian aluminium and steel. It should make it clear to USTR officials that enough time has been provided to them to iron out the matter and if the issue is not sorted out by August 4, the retaliatory tariffs would roll in.
While Trump is a powerful man, Indian Prime Minister Narendra Modi should take inspiration from other WTO members, including China, the EU and even Turkey, who are all on the path of retaliation.
India needs to remember that the US cannot operate in isolation. While bending a bit for the Trump regime given the US’s superpower status may be diplomatically appropriate, India should not crawl.