Steel and aluminium can unlock the USIndia trade agenda
On November 22, Indian commerce and industry minister Piyush Goyal is set to meet his American counterpart, the United States Trade Representative (USTR) Katherine Tai for the Trade Policy Forum (TPF), the first time that it has been held since 2018. The meeting marks the first opportunity under the Joe Biden administration for India and the US to try to untangle some of the thorny market access issues that have plagued their trade relationship.
During the Donald Trump administration, the two sides came close to agreeing to a “mini trade deal”, which would have seen India remove tariffs on some products in exchange for reinstatement into the Generalized System of Preferences (GSP) programme, a zero-tariff programme. Though the
Joe Biden administration has been lukewarm to new trade agreements,
India continues to express hope that a new deal can be reached — and is approaching the upcoming TPF with priority placed on regaining access to the GSP programme.
However, this US preferential programme officially expired on December 31, 2020, and requires an act of Congress for re-authorisation. Instead of focusing efforts on regaining GSP benefits, India should use TPF to begin negotiations with the US on how to remove the Section 232 steel and aluminium tariffs that the US placed on India in 2018.
In 2018, the US imposed a 25% tariff on certain steel products and a 10% tariff on certain aluminum products from India. India retaliated in June, 2019, by increasing tariffs on 28 products worth about $1.2 billion on US imports. But it isn’t hard to see why India wants the tariffs removed. India is the second largest producer of crude steel (accounting for 5.3% of global crude steel production in 2020), and in 2017, 4% of all Indian steel exports went to the US, which was the sixth largest market for Indian steel producers. However, after the imposition of the Section 232 tariffs, steel exports to the US declined by 46% year-on-year.
The first step towards a potential deal is for India to take the initiative — and consider unilaterally removing its retaliatory tariffs. In doing so, India will show that it is willing to be a constructive player in trade talks and create political room for the Biden administration. Even though removing the tariffs without a commitment from the US is a leap of faith, and will be a hard sell internally, it ultimately will be beneficial for the bilateral trade relationship, and help Indian industry.
India’s willingness to lift its retaliatory tariffs will bring other benefits. There is growing momentum to complete “mini-deals” with Australia, the United Arab Emirates (UAE), and the United Kingdom (UK), and there is an agreement with the European Union (EU) to restart stalled trade negotiations. After years of increasing tariffs on various products (primarily to combat India’s rising trade deficit with China), there has been a noticeable shift in the Narendra Modi government’s attitude towards trade.
From a strategic point of view, one of the ways that India can counter China is through deepening trade ties with partners who are committed to supporting India’s growth. India has a trade agreement with Japan, and securing a deal with Australia is India’s next priority. A deal with the US will be beneficial for India, both strategically and economically. As companies assess whether to shift some of their manufacturing from China, a vibrant trade strategy can complement the productionlinked incentive schemes, and help to boost both manufacturing and exports.
Though TPF is not likely to result in any major breakthroughs, it is an important opportunity to forge a robust bilateral trade relationship in the Biden years. The US is one of India’s most important partners and both countries have grown closer. Shared concerns about China have translated into a robust defence and strategic relationship, overshadowing the tensions in the trade relationship.
India should use TPF as an opportunity to put together a market access package that will decrease trade tensions with the US, while giving the Biden administration political cover to remove the Section 232 tariffs, which, ultimately, will benefit Indian firms.