Will the U.S. Cut Off India's Nose, and Spite Its Own Face?
The clock is ticking. The Trump Administration has said it will cut India out of a low-tariff scheme to punish it for narrow U.S access to the Indian market - by tomorrow. But if Trump goes ahead with his threat, the biggest price will be paid by American workers and companies.
The Trump Administration set a May 4 deadline for terminating India’s participation in the Generalized System of Preferences. The GSP allows developing countries to export thousands of goods to the United States with free or reduced duties. India has requested a 90-day extension in the deadline due to its national election on May 19.
Protectionists such as Trump and U.S Trade Representative Robert Lighthizer have threatened to strip India of its GSP privileges because U.S goods face a tougher time entering the U.S market. India has a $29 billion trade surplus with the United States.
Trump gave some examples in January of what he sees as the unfairness of the U.S-India trade relationship. “They make whiskey and sell it to us,” he said. “We charge them zero (in tariffs.) We sell it to them, they charges us 150 percent.”
“Look at motorcycles,” Trump continued. “It’s still 50 percent (Indian tariff on U.S cycles) versus 2.4 percent (U.S tariffs.)
But lower foreign tariffs just mean lower prices for American consumers. If the price of whiskey and motorcycles is kept down for Americans, it is Americans who benefit. Not only are the prices of goods from India kept down, but the increased supply helps keep down prices of other suppliers, domestic and foreign. U.S companies benefit from the cheaper inputs, making them more efficient and competitive.
Look at it this way: If consumers and downstream producers didn’t derive a benefit from the cheaper Indian goods, they wouldn’t buy them. And if U.S companies face trade retaliation for higher tariffs, they find themselves forced to shift production outside the United States, a la Harley Davidson.
But the bigger point about GSP is that it makes more countries competitive - and that is good for all of us. If India is able to compete globally, that equals one billion people who become part of the international trading system - one billion more minds developing new products and services and more efficient ways to produce them. Two billion more hands rowing the ship.
That, really, is why developed countries provide easier access to our markets - it is good for us. It would be a mistake to sacrifice that substantive benefit because of visceral anger.
Will the Trump Administration blink on this issue? We’ll find out tomorrow, when it decides whether to extend the deadline for India to continue to be eligible for GSP.
