Trump Threatens Taxes On Indian Imports If Harley Davidson Bikes & Other US Products Are Not Sold Cheaper In India

US President Donald Trump on Thursday bracketed India, a middling American trade partner, along with China, for retaliatory trade tariffs if they do not ease up on taxing American imports.

"We're going to be doing a reciprocal tax programme,'' Trump said at a White House event where he simplified the tariff issue for his working-class base.

''They are 50, they are 75 or they are 25, we are going to be doing the same numbers. It's called reciprocal. It's a mirror of tags. So they charge us 50, we would charge them 50."

Reuters

While Trump has primarily highlighted the Harley Davidson motorbike issue with India in recent weeks to underscore differences on tariffs with New Delhi, it forms only a miniscule and inconsequential part of India¡¯s imports from the US.

In fact, India will be largely unaffected by the tariffs except for the fact that major exporting countries that face tariff barriers in the US may now divert their goods to India¡¯s large consumer market, affecting Indian producers.

ALSO READ: Donald Trump Wants India To Sell Harley-Davidson At Half The Price By Reducing Import Duty

Trump also undercut his own pledge by carving out tariff exceptions for Canada and Mexico, the third and fourth largest US trading partners. Most affected will be the European Union and China, which are the top two US trading partners, and which have threatened retaliation if Trump goes ahead with tariffs, resulting in a trade war and an all round increase in prices.

Reuters

New Delhi itself is Washington¡¯s tenth largest trading partner, and here is broadly how the tariff issue breaks down in US-India bilateral trade. India¡¯s top imports from US in 2016 were precious metal and diamonds ($7.0 billion), machinery ($2.0 billion), optical and medical instruments ($1.3 billion), mineral fuels ($1.2 billion), and electrical machinery ($1.2 billion).

While precious metal and diamonds are part of a round trade (India also exports $ 11 billion worth of the same to US), the consequential items are machinery, optical and medical instruments etc., reducing the tariff on which will largely benefit Indian consumers even as it helps US exports to India.

Reuters

The US also exports $ 1.3 billion in agricultural products to India, including tree nuts ($522 million), cotton ($250 million), pulses ($144 million), fresh fruit ($72 million), and planting seeds ($32 million). While removing tariffs on some of these items (say California almonds and Washington apples) could hurt local farmers, it will mean lower prices at stores urban Indian elites frequent.

On the flip side, the largest US import from India is pharmaceuticals ($7.4 billion in 2016) and a Trump tariff on this will simply make generic medicines more expensive for Americans (drugs imported from U.S are already expensive for Indians).

A retaliatory Trump tariff on the $ 2.1 billion of agricultural produce US imports from India (including spices ($279 million), rice ($158 million), tree nuts ($157 million), essential oils ($151 million), and processed fruit & vegetables ($114 million)), won¡¯t kill US consumers or Indian exporters. Basmati rice in US stores is, for instance, cheaper than in India.

Reuters

In any case, the overall volume of trade between US and India ¨C less than $150 billion ¨C is small beer compared to trade with its top four partners EU, China, Canada, and Mexico, each topping $500 billion. In fact, the US-EU trade DEFICIT is more than the entire volume of trade with India.

Trump acted on the tariff matter after months of talking up an issue that has been his pet peeve for decades, going back to his days as a young businessman, although the consensus among economists was it would hurt more US workers than it will help. They say he still sees the issue in purely business terms rather than through strategic lens.

Reuters

For instance, inasmuch as Trump has said ad nauseum that foreign imports have destroyed the American steel industry (¡°and a country that has no steel industry is not a country to speak of¡±), tariffs on imported steel will affect more workers in the US auto industry (which depends on imported steel) than it will benefit domestic steelworkers, who in any case produce steel at higher cost than the imports.

Experts also warn that the matter of trade and tariffs are also tied in with strategic issues: The US has geo-political obligations with some of its major trading partners, which is why Canada and Mexico have got a temporary pass.