While You Were Distracted With Mexico And China, Trump Started Another Trade War On Friday

Lost in the shuffle late this week was Donald Trump’s decision to pick yet another trade fight, this one with India.

It was difficult to escape the Mexico and China headlines on Friday and even in the absence of those headlines, the India news probably wouldn’t have received top billing given that it was telegraphed months ago. But make no mistake, it’s notable.

On March 4, the administration told Congress that Trump intended to do away with key trade concessions that permit duty-free entry for thousands of products from auto parts to textiles.

One look at what Trump was aiming to terminate and you came away laughing, and not because it’s particularly funny, but because, as usual, the language around the program is overtly lofty, which makes for a highly amusing juxtaposition with Trump’s decision to scrap it.

The move is tied to the “generalized system of preferences“, the goal of which is to “provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.”

Sounds good, right? Not according to Trump, it doesn’t.

Obviously, this program helps (rather than hurts) the US economy and creates (rather than imperils) jobs in America. Just ask the USTR. To wit:

GSP supports U.S. jobs and helps keep American companies competitive. Moving GSP imports from the docks to U.S. consumers, farmers, and manufacturers supports tens of thousands of jobs in the United States. GSP also boosts American competitiveness by reducing costs of imported inputs used by U.S. companies to manufacture goods in the United States. GSP is especially important to U.S. small businesses, many of which rely on the programs’ duty savings to stay competitive.

As we wrote at the time, this program provides for the same kind of common sense benefits that everyone who lives in modernity understands are part and parcel of free trade. Or, in other words, this is exactly the kind of program that Trump would try to undermine.

For reference, the US goods trade deficit with India was $21.3 billion in 2018.

Apparently, Trump decided not to cut India off from the program until after the election in order to avoid influencing the vote. (How kind of him) But Trump’s got an itchy trigger finger, which is why it comes as no surprise that the White House waited just one day after Modi was sworn in for a second term to make it official. The proclamation from Trump reads (in part) as follows:

Consistent with section 502(d)(1) of the 1974 Act, and having considered the factors set forth in sections 501 and 502(c), I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets.  Accordingly, it is appropriate to terminate India’s designation as a beneficiary developing country effective June 5, 2019.

Section 502(f)(2) of the 1974 Act (19 U.S.C. 2462(f)(2)) requires the President to notify the Congress and the affected beneficiary developing country, at least 60 days before termination, of the President’s intention to terminate the affected country’s designation as a beneficiary developing country, together with the considerations entering into such decision.  I notified the Congress and India on March 4, 2019, of my intent to terminate India’s designation, together with the considerations entering into my decision.

 Consistent with my determination that it is appropriate to terminate the designation of India as a beneficiary developing country under the GSP, effective June 5, 2019, I have determined to remove it from the list of developing country WTO Members exempt from application of the safeguard measures on CSPV products and large residential washers.  

So, yeah, Trump has now decided that India isn’t really a developing country anymore. And, yes, you read that last paragraph correctly – this means India is now subject to the washing machine tariffs, the opening salvo in Trump’s now 17-month-old trade war. The move affects some 2,000 products. In 2017, GSP status spared around $5.7 billion in imports from duties.

Although the Trump administration continues to cultivate a good relationship with India, this comes at a somewhat delicate juncture. Consider this from the Economic Times:

Addressing a press conference, Congress chief spokesperson Randeep Surjewala said it is a “double whammy” for India which has “succumbed to US pressure” of not buying crude oil from Iran and has also lost the special trade status. He alleged the government did “nothing to preempt it” despite being informed of the decision in March.

“On behalf of the people of India, we urge upon Prime Minister Narendra Modi to make a comprehensive statement on the issue to the nation and place before the public a way forward to overcome this grave trade and economic crisis,” he told reporters.

Trump’s decision not to renew waivers for buyers of Iranian oil came as a surprise when it was announced late in April and it wasn’t welcome news to anyone, really.

“The decision comes at an inopportune time for the Modi government, which is seeking re-election”, Tanvi Madan wrote on April 23, adding that “New Delhi has other concerns about the [waivers decision] including the potential impact on oil prices, and on India’s development and use of the Iranian port of Chabahar to facilitate alternate connectivity with/for Afghanistan.”

She went on to list “three broader concerns”, one of which was Trump’s looming decision on GSP. “The Iran and Venezuela sanctions problems have come at a time when other irritants in the US-India relationship have come to the fore”, Madan warned, flagging “trade frictions” and specifically, Trump’s announcement that the US “intends to withdraw India’s benefits under the Generalized System of Preferences because of continuing concerns about Indian trade and investment policies.”

“Indian officials have raised the prospect of higher import duties on more than 20 US goods if Trump drops India from the program”, Reuters reminds you. Early last month, two-dozen US lawmakers implored Trump not to terminate India’s GSP status.

On the bright side, Treasury did remove India from the currency monitoring list this week.

“It is certainly a welcome step that the US has now removed India from that list”, Axis Bank chief economist Saugata Bhattacharya said on Thursday, adding that “this will hopefully set the tone for discussion on resolution of some of the trade related differences with the US, particularly in the Generalized System of Preferences issue.”

Donald Trump is sorry to disappoint you, Saugata Bhattacharya.