Trump re­fuses to give In­dia an easy ride on tar­iffs

But back-chan­nels are open and with elec­tions loom­ing in both coun­tries the trade war could be short-lived, re­ports He­len Chan­dler-wilde

The Sunday Telegraph - Money & Business - - Business -

Harley-david­son, that sym­bol of rebel spirit and in­de­pen­dence, has in re­cent months found it­self re­duced to can­non fod­der in global trade con­flicts. It has been caught in the cross­fire be­tween the Trump ad­min­is­tra­tion and the EU. Now the Amer­i­can icon is again on the front­line as the pres­i­dent turns his guns on In­dia.

Trump last week crit­i­cised the In­dian tar­iff on mo­tor­cy­cles, which ear­lier this year stood at 100pc. He told sup­port­ers this level was “so high it’s like a bar­rier, in other words, who’s go­ing to buy it when it costs you so much?”.

He at­tacked In­dia, call­ing it the “tar­iff king”, and claimed its im­port taxes are “tremen­dously high”.

How­ever, Trump said that af­ter talk­ing to prime min­is­ter Naren­dra Modi, In­dian tar­iffs on the bikes would be slashed to 50pc. Could an ex­port boost for Harley sig­nal back-chan­nel progress to­wards a broader en­tente?

Ten­sions have been sim­mer­ing be­tween the two coun­tries for some time. In March, US trade rep­re­sen­ta­tive Robert Lighthizer com­plained to the World Trade Or­gan­i­sa­tion about sub­sidy pro­grammes run by the In­dian govern­ment to en­cour­age ex­ports.

The same month, Trump put tar­iffs of 25pc on steel and 10pc on alu­minium on all im­ports into the US. In­dia drew up a list of Amer­i­can goods on which it would hit back and ap­ply tar­iffs in June, but has left the door open to ne­go­ti­at­ing by de­lay­ing the date they be­come ef­fec­tive a few times from its orig­i­nal Aug 4 dead­line. It is now sched­uled for Nov 2.

“I think they want to fly un­der the radar as much as pos­si­ble,” says Jan Dehn, head of re­search at emerg­ing­mar­kets in­vestor Ash­more Group.

“I think they will con­tinue to use back-chan­nels to stay as low-pro­file as pos­si­ble. We have an elec­tion in In­dia next year. Modi is a na­tion­al­ist and it would put him in an awk­ward sit­u­a­tion if he ap­peared weak or vul­ner­a­ble in the con­text of an at­tack from Trump. So they will try to defuse this as soon as pos­si­ble.”

Some be­lieve the high tar­iffs may help bring the trade war to a swift con­clu­sion, as there is plenty of room for ma­noeu­vre. In­dia’s av­er­age tar­iff level was 13pc, among the high­est in the world.

“I think there is more scope for ne­go­ti­a­tion with In­dia than China, as tar­iffs are high there is scope for them to come down,” says Dou­glas Reed, an emerg­ing-eq­ui­ties econ­o­mist at New­ton In­vest­ment Man­age­ment.

“We ex­pect an agree­ment of some type to be ne­go­ti­ated, within the next few months I imag­ine.” How­ever, elec­tions in both In­dia and the US could put strain on In­dia’s abil­ity to end trade ten­sions quickly and qui­etly.

“We have about five or six months be­fore our gen­eral elec­tion – so it’s very im­por­tant for Modi not to be seen as naive,” says Dr Sreeram Chau­lia, dean of the Jin­dal School of In­ter­na­tional Af­fairs. He says if the US con­tin­ues to find fault with In­dia’s poli­cies, the op­po­si­tion could use it as a stick with which to beat Modi in the polls, due in April or May next year.

Trump too is about to face an elec­tion at home in the midterms in Novem­ber.

“We’re go­ing to wait to see what hap­pens af­ter Novem­ber,” says Chau­lia. “Is he go­ing to con­tinue to be a trade hawk af­ter the midterms? Lots of peo­ple think that this is just to get vot­ers on side. Once the elec­tions are over there are still two years be­fore the pres­i­den­tial elec­tion.”

If tar­iff con­flict is re­solved peace­fully, other as­pects of the trad­ing re­la­tion­ship be­tween the US and In­dia could cause prob­lems.

US sanc­tions on Iran are a po­ten­tial flash­point. In­dia is the sec­ond-largest im­porter of Ira­nian oil af­ter China.

“Ira­nian oil is a lot cheaper – and In­dia is de­pen­dent on im­port­ing oil,” says David Cor­nell, fund man­ager at In­dia Cap­i­tal Growth.

“In­dia is very neg­a­tively af­fected by the pres­sure Trump is putting on Iran. In­dia has been ne­go­ti­at­ing with the Ira­ni­ans to try to by­pass the sanc­tions the US is putting on Ira­nian oil,” he adds.

The price of oil is a sen­si­tive is­sue in In­dia. “It’s a po­lit­i­cal is­sue – if the oil price goes up a lot … it hurts the trans­port sec­tor, it hurts farm­ers who use trac­tors, it hurts house­holds cook­ing at home,” says Chau­lia.

“And in an elec­tion year there may be po­lit­i­cal ram­i­fi­ca­tions.”

Trump is also un­happy about In­dia’s $5bn (£3.8bn) deal to pur­chase Rus­sian de­fence sys­tems over an Amer­i­can al­ter­na­tive.

“There is lots of fear about what Trump might do about the Rus­sian anti-mis­sile S-400 sys­tem,” ex­plains Chau­lia. “Trump has been say­ing for months that he would im­pose sanc­tions if we bought the S-400. We’re on the chop­ping block; it’s a sanc­tions Damo­cles’ sword hang­ing over our necks.”

An­other is­sue could be changes to US im­mi­gra­tion rules re­cently ad­vanced by Trump. “In­dia has been send­ing a lot of its bright­est peo­ple to study and work in the US,” says Dehn.

“So the Trump im­mi­gra­tion poli­cies will harm the abil­ity of In­dian cit­i­zens to live and work there.”

Cor­nell said visa re­stric­tions could cre­ate is­sues for In­dian busi­nesses op­er­at­ing in the US. “It makes it harder for In­di­ans to put their peo­ple on the ground in the US,” he says.

Ul­ti­mately, there are sig­nif­i­cant geopo­lit­i­cal con­cerns that may dis­cour­age the US from bat­tling In­dia on trade.

China’s “Belt and Road” ini­tia­tive to spread its in­flu­ence through­out Asia, Africa and east­ern Europe may be chal­leng­ing Amer­ica to make its own friends in the re­gion.

Dehn ex­plains that although Ja­pan, like China, has a large trade sur­plus with the US, it is un­likely to be a tar­get of Trump’s tar­iffs. Ja­pan had a sur­plus of $63bn in 2017, the fifth-largest with the US and far less than China’s $350bn fig­ure. “Is Trump go­ing to sac­ri­fice the US’S last ally in the pa­cific for a bit of pro­tec­tion­ism?” he says. Cor­nell says this rea­son­ing would make the US seek to keep In­dia on side. “It will help In­dia ne­go­ti­ate with the US,” he says. Trump’s fo­cus on China may also help to take the heat off In­dia, whose trade sur­plus with the US stood at $24bn in 2017.

So far, Trump has put tar­iffs on $250bn of Chi­nese im­ports.

“Trump’s main fo­cus is on China right now. Even with the Mex­ico and Canada agree­ment he has a clause that says if any­one has a trade agree­ment with China then you have to re­tal­i­ate within the new Nafta agree­ment,” says Devashish Mi­tra, an eco­nomics pro­fes­sor and global af­fairs spe­cial­ist at the Max­well School of Cit­i­zen­ship and Pub­lic Af­fairs at Syr­ca­cuse Univer­sity, New York.

Mi­tra says Trump’s po­lit­i­cal de­sire to demon­strate wins may lead him to hold off from at­tack­ing In­dia un­til the trade war with China is “won”.

“If Trump just wants a tiny win to show his elec­toral base that’s dif­fer­ent – as an econ­o­mist I can’t un­der­stand it but I get the pol­i­tics,” he says.

If an es­ca­la­tion of hos­til­i­ties can­not be avoided, it is likely to shake mar­kets less than the Us-china bat­tle has done, due to the rel­a­tively low value of trade be­tween In­dia and the US.

“In­dia is sim­i­lar to the US in that it’s navel-gaz­ing. You go to the Mid­west and you show them a map of the world and they can’t point out Ger­many.

“In­dia is more in­formed about the rest of the world – but it’s an enor­mous coun­try with a long his­tory of in­ward­look­ing, state-led, self-re­liant poli­cies that were brought in by Nehru af­ter in­de­pen­dence. Modi is only just start­ing to dis­man­tle that. It’s ba­si­cally a do­mes­tic econ­omy with a bit of trad­ing on the edge.”

How­ever, even if there are ways out of a trade war, in­vestors are still keep­ing an eye on what Trump says.

“Peo­ple are wor­ried – who isn’t wor­ried about Trump’s rhetoric? In­dia is no dif­fer­ent,” says Cor­nell.

‘If tar­iff con­flict is re­solved peace­fully, other as­pects of the trad­ing re­la­tion­ship be­tween the US and In­dia could cause prob­lems’

Harley-david­son mo­tor­cy­cle own­ers take part in a bike rally in Ban­ga­lore; Don­ald Trump and prime min­is­ter Modi, be­low

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.