The government has announced the imposition of retaliatory tariffs on 28 high value US imports. The move follows Washington’s decision to withdraw benefits extended to Indian exporters under the generalised system of preferences (GSP) as well as its reluctance to exempt India from higher tariffs on steel and aluminium imports. The decision to levy tariffs on US agricultural products appears to be strategic — politically, its an important constituency. But, India needs to tread carefully. While failure to react could have been construed as a sign of weakness, there is genuine concern that the move could provoke further action. At a time when export growth has been sluggish, rather than getting dragged into a spat with its largest trading partner, the focus should be to address the bigger problem of India’s subdued export peformance and the unmistakable rise in protectionist tendencies in the recent past. Efforts to revive export growth, by integrating itself into global production chains, should be given primacy.
The ongoing trade war between the US and China provides India an opportunity to boost its exports. According to reports, a Ministry of Commerce study suggests that of the 774 US tariff lines on which China has imposed extra duties, India has the scope to boost its exports in 151 items. In these 774 items, China’s imports from the US stand at an annual $20.4 billion. But while the opportunity exists, the question is whether India can scale up its production to meet the demand. Can it provide quality products competitively? The worry is that countries like Vietnam and Bangladesh are better placed to take advantage of the ongoing trade war. In fact, these countries have seen a surge in their exports, even as India’s exports have remained largely at the same level over the past five years. Slow global growth and trade will only complicate matters as countries will compete aggressively for export market share. The IMF has already lowered its world growth forecast to 3.3 per cent in 2019, from 3.6 per cent last year, and the WTO expects trade volume growth to fall to 2.6 per cent in 2019, from 3 per cent in 2018.
Measures to promote domestic manufacturing are needed to boost exports. But they should be WTO compliant. Simplifying tariff structures and lowering tariffs will help integrate India in global production chains and provide the much-needed impetus to exports and employment. Perhaps the visit by the US secretary of state, Mike Pompeo, later this month could also help clear the air on the India-US trade spat.