NEW DELHI -- After months of simmering trade tensions between the United States and India, President Donald Trump is following through on his threat to punish India for being what he called "a very high-tariff nation."
On Monday, Trump notified Congress that the United States intends to end the preferential treatment for a host of Indian goods that now enter the country duty-free. The changes will not take effect for at least 60 days.
In a letter, Trump said India would no longer receive benefits under the Generalized System of Preferences, which was set up in the 1970s to promote trade from developing countries. Turkey's benefits under the program will also end.
The move marks the first time the Trump administration has targeted what it views as unfair trade practices by India, a country it has sought to cultivate as a strategic partner. Last year, Trump initiated a trade war with China, but now the two countries are reportedly nearing a deal to de-escalate the dispute.
Trump has made no secret of his frustrations with Indian trade policy and has fixated on the duties the country charges on Harley-Davidson motorcycles. On Saturday, during a speech at the Conservative Political Action Conference, he once again raised the topic.
"When we send a motorcycle to India, they charge 100 percent tariff," Trump said. "When India sends a motorcycle to us, we charge nothing." The claim was found to be true, although Harley-Davidson has largely bypassed tariffs by assembling its bikes in India.
The decision to end India's preferential treatment comes after months of squabbling between the United States and India over trade. Trump has complained about India's high tariffs on American goods and about the U.S. trade deficit with India, which stood at $27.3 billion in 2017, according to the Office of the United States Trade Representative.
Meanwhile, India recently announced changes to its e-commerce rules that are considered detrimental to American giants such as Walmart and Amazon.
India did not assure the United States that it would "provide equitable and reasonable access to its markets in numerous sectors," the trade representative's office said in a statement announcing the decision to end the preferential trade status.
So far, India's response has been muted. Indian Commerce Secretary Anup Wadhawan said the decision would not have a "significant impact" on exports, according to Asian News International. The "economic value of GSP benefits are very moderate," he said.
India is the preference program's biggest beneficiary and exports about $5.6 billion in goods to the United States under the program, including motor vehicle parts, precious-metal jewelry and insulated cables. Just over 10 percent of India's current exports to the United States benefit from the program. The United States remains India's top export partner, receiving more than $48 billion in goods from the country in 2017.
In April 2018, the United States announced that it was reviewing India's status under the preferences program. Later in the year, efforts by the two countries to resolve long-running trade issues faltered.
Monday's punitive step is "perfectly aligned with this administration's outlook," said Richard Rossow, a senior adviser at the Center for Strategic and International Studies in Washington. "By and large, I think India knew this was coming."
Rossow noted that despite ongoing trade frictions, U.S. exports to India grew by over 25 percent in the past 12 months. "If ultimately a trade war starts to impede what actual companies are doing, then I'll get worried," he said.
The move comes weeks before India's national elections, and just as Prime Minister Narendra Modi's government is trumpeting its foreign policy prowess and military strength following a stand-off with Pakistan.
Both Trump and Modi likely hope to isolate thorny trade issues from their geopolitical ties as both countries position themselves in Asia against an increasingly assertive China. But even assuming the strategic alliance -- which includes the so-called Quadrilateral Security Dialogue between the U.S., India, Japan and Australia -- remains intact, the world's two largest democracies are probably still headed for a bout of turbulence.
Even if Modi doesn't want to raise the temperature, "the discourse in this country has been that America needs India to balance China," said Harsh Pant, an international relations professor at King's College London. "And the question will be: Why is America doing this to India?'
Needling India on trade will have a "corrosive effect" on Modi's views of the U.S. and fits a pattern of Trump's focus on narrow trade grievances at the expense of broader strategic concerns, according to John Blaxland, head of the Strategic and Defence Studies Centre at the Australian National University.
"It is extraordinary how Trump manages to demarcate trade from geopolitics, when in the real world they are intimately linked," Blaxland said.
That extends to the U.S. pulling out of the Trans-Pacific Partnership trade deal that would have more closely tied Asian economies to Washington, despite pleas from regional allies such as Japan to reconsider, Blaxland added. "The TPP was dismissed, just as trade links with India and Turkey now appear set to be discarded," he said.
Trump's removal of trade concessions is not entirely unwarranted, coming after Indian customs duty increases, expanded import substitution rules and domestic price caps, Rossow said.
However, the current dispute follows previous U.S. attempts to pressure New Delhi to draw down significant oil imports from Iran, as well as Venezuela. India -- whose history of non-alignment gives it close economic partners that make Washington policymakers uncomfortable -- has nevertheless increased oil, natural gas and coal imports from the U.S.
Trump has pressured other allies on trade -- notably Germany, as well as the European Union and South Korea -- while maintaining security relationships. But the U.S.-India alliance has far more fragile foundations, making the fallout from the scrapping of preferential trade concessions more volatile.
U.S.-India ties are more of "a collaboration of convenience," said Nick Bisley, an international relations professor at Melbourne's La Trobe University. "This could be used by the foreign policy elite in India to say, 'Don't get too close to the U.S."'
Especially as the Indian election approaches, Trump's decision could well get sucked into the campaign atmosphere of domestic politics.
"The optics of this are bad, because it comes at a sensitive time," said Pant of King's College London. While unlikely to hurt broader bilateral ties, "with elections in just a couple of months, I don't think the Indian government would like to be seen buckling to American pressure."
Information for this article was contributed by Niha Masih of The Washington Post and by Iain Marlow and David Tweed of Bloomberg News.
A Section on 03/06/2019