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Give and take

US concern on trade imbalance with India is misplaced — it is hardly the result of deliberate policy.

By: Editorial |
May 9, 2019 12:22:43 am
Trade imbalances in today’s world are rarely a result of deliberate policy.

Donald Trump is on a mission. On Sunday, the US President announced a hike in tariffs on $200 billion worth of goods imported from China to 25 per cent, from the 10 per cent imposed in July last year. The higher duty — already applicable on another $50 billion of high-tech imports — will be effective from Friday, with threats of extending it “shortly” to an additional $325 billion of Chinese goods. But it’s not only China that is under the line of fire for allegedly engaging in restrictive trade practices and discriminating against US companies. On Tuesday, US Commerce Secretary Wilbur Ross accused India of following policies leading to “trade imbalances” and “significant market access barriers” for American businesses. Proof of this, according to him, was the fact that while the US was India’s biggest market, accounting for a fifth of its total exports, India was only the 13th largest market for US exports.

The above argument is specious. Trade imbalances in today’s world are rarely a result of deliberate policy. Rather, they have more to do comparative advantage, wherein every country produces goods and services that it can supply relatively cheaper and imports those that are better left to others to deliver at a lower cost. The beneficiary is the consumer. The bulk of India’s exports to the US — textiles and apparel, gems and jewelry, IT services, generic drugs, marine products or even steel, organic chemicals and refined petroleum products — comprise things where India definitely enjoys a comparative advance. The US, on the other hand, mainly exports aircraft, medical devices, patented drugs, telecom equipment and other high-tech goods plus assorted high-value agri-commodities such as dry fruits and apples to India. Moreover, it is an exporter of capital, which takes the form of foreign direct as well as portfolio investments by American companies. They, in turn, remit dividends, interest, royalty and other income from their operations in India. Simply put, there is nothing immoral or unnatural about rich countries running merchandise trade deficits with the likes of China and India. They may well offset that with surpluses in goods and services embodying proprietary technology and brand value.

That said, there are genuine US concerns India should address. There is, for instance, no justification in import duties of 50-60 per cent on motorcycles and cars. The Indian auto industry certainly does not require so much protection today. Equally silly are the restrictions on foreign e-commerce players — their being allowed to operate only as “marketplaces” and not as “retailers”. The losers from this aren’t just Indian consumers, but also the many employed in warehouses, delivery stations and logistics networks established by Amazon or Flipkart. Trade is ultimately about give and take. With Trump at the helm, some give on the part of India and China is unavoidable.

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First published on: 09-05-2019 at 12:22:43 am
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