Trade War Triggered: India May Impose Higher Duty On US Imports Worth $10.6 billion

US had earlier scrapped GSP benefits worth $5.6 billion for India

India-US trade war triggered?
India-US trade war triggered?

India and the US, both have triggered a new round of trade war, which can prove disastrous for businesses from both the nations.

As per incoming reports, India may place a higher duty on 29 imported goods from the US, which has been described as ‘retaliatory tariff’, in response to a similar move by US few days back.

What exactly is happening here?

India Retaliates Against US: Higher Import Duty Now

An unnamed official from the Commerce Ministry has stated that India may impose retaliatory tariffs on US imports worth $10.6 billion.

Around 29 goods have been proposed, on which US exporters can be asked to pay much higher import duty, which will essentially make it unviable for them.

These proposed products are: US walnuts, chickpeas, lentils, boric acid and diagnostic reagents, among other goods. Annual burden of $290 million will be imposed, in case India takes this decision, effective April 1st, 2019.

The unnamed official said, “We are weighing all our options. The retaliatory tariffs may kick in either after the current deadline ends or before that. We are reserving our right to drag the US to the WTO (World Trade Organization) as the GSP (generalized system of preferences) withdrawal violates the principle of non-discrimination,”

If India takes this retaliatory action, then import duty on walnuts will increase by 4X to 120%, while, duties on chickpeas, Bengal gram (chana) and masur dal will more than double to 70% and on lentils, it will increase to 40%.

If India imposes this retaliatory tariff, then exporters in the US will be negatively impacted, so will the businesses in India.

During April-December of 2018-19, India imported $5.45 billion of mineral fuels, mineral oils, bituminous substances and mineral waxes from the US.

Why Will India Impose Retaliatory Tariff On the US?

US runs a program called Generalised System of Preferences (GSP), under which imports of some products from some countries are charged less import duty to encourage trade.

Earlier this week, US decided to scrap GSP benefits worth $5.6 billion to India.

US President made this announcement via a letter sent to House Speaker Nancy Pelosi and Vice President Mike Pence, wherein he accused India of not offering US “equitable and reasonable access” to its markets.

Later, The US Trade Representative’s Office (USTR) stated that the scrapping of GSP benefits to India will end in 60 days, from the issuance of the letter.

Among other eligibility criteria for GSP, US demands: “providing the US with equitable and reasonable market access, protecting workers’ rights and combating child labour”.

This is a significant step, this single decision will make products exported to the US costly, making the business unviable.

At $5.6 billion, India is the largest beneficiary of the GSP program.

IN 2017, India and the US conducted $126.2 billion worth of trade, out of which $27.3 billion was a deficit for the US. On the other hand, out of  $76.7 billion total exports done by India, US scrapping of GSP benefits worth $5.6 billion is a small part.

But none the less, a trade war between India and the US is not a good sign; especially when ecommerce firms like Walmart-owned Flipkart and Amazon are trying to simplify the complex policies.

We will keep you updated, as receive more details.

Sources: 1, 2, 3, 4, 5

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