While India runs a trade deficit with the rest of the world, it has been enjoying a trade surplus with the US for years. This is something US President Donald Trump would be keen to even out.
In fact, US’ imports from the world have seen a significant increase, touching $3.1 trillion in 2023 from $2.5 trillion in 2019. The key 20 products imported constituted a 28 per cent share of the total exports, at harmonised 6 digits.
While India’s export share in US’ total imports stands at 2.8 per cent, it caters to 3.4 per cent of US key 20 imported items, at around $30 billion.
Amongst the key products imported by US from India are diamonds, followed by drugs and medicaments, petroleum products, and photovoltaic cells. Furthermore, and most notable is smartphones for wireless networks which have seen a significant increase. So are frozen shrimps, and articles of jewellery.
It is assumed that US may not impose any import tariff immediately on such key items, especially when India has recently cut the peak import tariff from 150 per cent to 70 per cent, and average tariffs to below 11 per cent from 13 per cent. US total imports from India stands at $87 billion.
FTA not an easy walk
As anticipated, Trump has been making headlines on trade. His angst vis-a-vis India was first visible when in 2019 he revoked the 45-year-old General System of Preferences (GSP) status given to India as part of a special duty treatment for some Indian exports.
While India and the US have been exploring the prospects of signing a mutual agreement ever since Trump’s first tenure, there has not been much traction. Nevertheless, should there be formal talks it will not be a cake walk under Trump, given his idiosyncrasies.
NAFTA, despite being one of the most successful trade agreements in history, was revisited and renamed during Trump’s tenure to United States-Mexico-Canada Agreement (USMCA). What is shocking is that Trump in a matter of a few years finds its next-door neighbours unreliable when it comes to doing trade.
Trump seems to be greatly influenced by the Alexender Hamilton’s theory on ‘infant industry argument’, supporting trade protectionism for new industries. The fact is the US is examining anything under the sun which is being imported. Such protectionist measures may greatly impact its economy, leading to inflation and forcing US Fed to increase interest rates.
FTA negotiations with the US may eventually lead to widening of India’s trade deficit by allowing greater US exports, apart from India facing issues on areas like labour standards and intellectual property, impacting small businesses.
QUAD trade
Amidst this all, India may look to tread a balanced approach and work with like-minded partners.
Prime Minister Modi and Japanese Prime Minister Ishiba both are stepping up trade talks with the US (Modi is visiting this week). The countries could look at exploring a very different trade agreement among the Quad members, which would also include Australia. This will also help to maintain a strategic balance in the Indo-Pacific, particularly in view of China’s economic growth.
While New Delhi recently reduced import duties on bigger bikes, benefiting companies like US based Harley-Davidson, Tokyo too is preparing to increase its shale energy imports from the US. Japan ranks fifth while India ninth in the list of importing countries of the US.
US has an FTA with Japan and Australia, so does India. While each one is different by its nature, a combination could work for India and the US too, under the Quad. New Delhi is also set to host the next QUAD Summit.
A suitably crafted FTA could transform dynamics in the global trade pattern. Quad today represents approximately 24 per cent of the world’s population, and 18 per cent of global trade.
The writer is an Economist with Exim Bank. Views are personal.
