An unexpected shot was fired at India this week by the Trump administration as part of its trade policy. India was hit with added tariffs to agricultural products and auto parts, among other goods it exports to the U.S., at the direction of President Donald Trump and his campaign of "getting tough" on India.
India had enjoyed duty-free status on these goods as part of the Generalized System of Preferences (GSP) the U.S. Commerce Department runs. While Indian exporters will ultimately pay the price, this move by Trump has more to do with China than with India. Turkey was also removed from the program along with India as U.S. Commerce Secretary Wilbur Ross specified that this program was only for countries whose economies were still developing. Turkey's economy has grown out of this status and therefore no longer is in need of such preferential treatment it said. Less than 1 percent of all Turkish exports to the U.S. will be affected while over 4 percent of Indian exports would be affected. Trump's repeated attack on India and its protectionist policies were signs that Trump would ratchet up the pressure on India to open it up to U.S. goods.
Were the increases in duties against India and Turkey really about economic policy or is there more at play here? In the case of Turkey, the announcement came a day after Jared Kushner was in Ankara discussing the Middle East peace process leading some to believe the timing was more political than anything else.
In the case of India, however, I believe the real message here wasn't necessarily to India but to China. Trade with China is five times as large as it is with India making China the U.S.' biggest trading partner. The U.S. and China are currently in the midst of a "trade war," the outcome of which will likely shape U.S.-China trade relations for at least a generation. In the context of negotiations with China, the U.S. has signaled, with this move, that it can always cozy up to India or it can give India the cold-shoulder if it wants to. Going forward, India will be China's biggest threat economically as its size and population make it uniquely able to challenge China.
China is at least 20 years ahead of India in terms of development but a potential prolonged trade war with China resulting in higher prices from Chinese exporters would be beneficial for India and should India be in a position to exploit these developments, it could develop far quicker in closing the gap with China. Having traveled extensively throughout both countries, I don't see India catching up with China anytime soon nor do I think India is a threat to China economically in the near term.
Unfortunately, democracy has all but failed India. Successive governments which rely on appealing to the ethnic and religious divisions in India to garner support during elections have left the country fractured and divided. Systemic corruption and a never-ending bureaucracy have added insult to injury and while China faces similar struggles, the government is far more centralized and its economic road map for the future is clearly laid out and predictable. These assets are all conducive to economic growth, assets which India does not, unfortunately, have.
Whatever the future of U.S. trade relations with India, President Trump has begun a policy of less-than-cordial relations with that country and save a renewed effort by both sides to warm relations, Trump's tenure as president will not be remembered as a golden age of bilateral relations between the two countries.