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Comments made during elections don’t determine ties: India on Trump’s threat

Oct 04, 2024 10:56 AM IST

Commerce and industry minister Piyush Goyal said he has explained the logic of Indian tariffs to Trump’s team, hinting they are meant as a defensive measure against China’s practices

Against the backdrop of Donald Trump’s promise to increase tariffs on all imports, India has said that it views America as an “outstanding” and “reliable” trade partner, underlying statements made during an election do not determine ties, and pointing to the Narendra Modi-led government’s ties with three different US administrations to suggest that relations will continue to get better irrespective of the electoral outcome in the US.

Commerce and industry minister Piyush Goyal. (X)
Commerce and industry minister Piyush Goyal. (X)

Commerce and industry minister Piyush Goyal said he has explained the logic of Indian tariffs to Trump’s team, hinting they are meant as a defensive measure against China’s practices. Goyal suggested the best way for other countries to avoid the same tariffs that apply under the most favoured nation (MFN) status is through a free trade agreement (FTA), putting the onus back on the US where the appetite for such a pact is non-existent at the moment.

At a press briefing in Washington DC on Thursday, HT asked Goyal if the US should be seen as an unreliable trade partner, given Trump’s campaign promise of increasing tariffs by 20% on all imports, and former US trade representative Robert Lighthizer’s comments about India being the “most protectionist country” in the world where policies were determined by 15 oligarchs. At a campaign rally in September, Trump called India a big “abuser” of trade.

Goyal said, “Let me say it on record, loud and clear: India looks at the US as one of the most reliable trade partners, an outstanding trade partner with whom we are increasingly expanding our relations and trade in goods, services, technology, investment, in every respect. We deeply value this relationship. I do not think comments made during an election determine our relations.” He added that under Modi, India had excellent relations with the Barack Obama, Trump, and Joe Biden administrations, and going forward, India would continue to have “excellent relations” with the US.

Goyal first called Lighthizer, who is Trump’s top trade czar, a “friend” with whom he had a chance to strengthen relations after becoming commerce minister in 2019, and then offered the most detailed Indian response to Trump’s tariff threats, which are driven by his view of reciprocity and claim that other countries impose tariffs on American products.

“As regards tariffs, we have had this discussion with Bob in explaining to him that every country protects certain goods and items based on national interests and based on offensive action of certain other countries.” He gave the example of the US imposing a tariff of 163% on peanut farmers, a “defensive” protective measure to its farmers. “There are products in India which have zero duty, some items which have low duty of 2.5-5% and few products with higher duties.”

Goyal said that in an “MFNised world”, a country also has to look at who was “dumping products, who have non-transparent and opaque pricing mechanisms through which they are sending products”, and then protect the domestic manufacturing industry from “indiscriminate imports” that are often “substandard but irrationally priced”. This was a clear reference to China and appeared to be a way to explain to American trade hawks that India’s tariff policies were aimed elsewhere. “In that situation, MFN rates apply to all and some countries may find it hurting them.”

In this context, Goyal said, that the best way forward for India and the US to do an FTA, pointing to India’s recent agreements with the UAE, Australia, and a set of European agreements, with the last trade pact also having an in-built investment commitment. “In order to overcome the constraints of MFN-based tariff structure, we have to work for bilateral relations. One can’t have higher taxes for one country and lower for another country other than through this mechanism. Bob understands that very well,” Goyal said, again referring to Lighthizer.

Goyal said that he had also explained to counterparts in America that if India reduced import duties on products of interest to the US, it would have to be on an MFN basis, and so the benefit of it may go to a third country since US products have higher prices. “So even if my intention is to help America and American business, the benefit won’t go to them and may go to another country.” He then gave the example of a product for which India was willing to reduce import duties, but the company for which the duty was to be reduced lobbied for it not to happen. This was because the company had started manufacturing in India and realised reduced duties would have led to a third country dumping items.

“The response to the high tariff argument is actually based on MFN..and a solution is also available which at some stage US and India may consider,” said Goyal.

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