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Analysis

Reciprocal Tax: When Trump bats for China!

Trumps understating of  issues have frustrated policy makers all over the work. From trade partners in Canada, to perceived competition in China no one is safe from what US President can think, and India is no exception.

In his bid for reciprocal taxes, Trump has time and again invoked import of US’ motorcycles in India. For a career Businessman, Trump shows a unique lack of understanding when it comes to taxes or international trade. His reciprocal taxes if applied on New Delhi may hit India and benefit China not US of A. Washington’s goods exports to India in 2017 were $25.7 billion, up 18.7% ($4.1 billion) from 2016 and up 71.6% from 2007. U.S. exports to India account for just 1.7% of overall U.S. exports in 2017. The top export categories were: precious metal and stone (diamonds) ($7.0 billion), mineral fuels ($2.8 billion), aircraft ($2.2 billion), machinery ($2.1 billion), and optical and medical instruments ($1.4 billion). U.S. total exports of agricultural products to India totaled $1.6 billion in 2017. Leading domestic export categories include: tree nuts ($738 million), cotton ($435 million), fresh fruit ($104 million), pulses ($53 million), and dairy products ($43 million).

India has not put up any sort of anti dumping duty or US specific tariffs in any of the major imports from US. However in manufacturing if India were to lower its trade barriers, her markets will be inundated by Chinese exports.

In the world governed by WTO guidelines, its difficult for any country to target its tariffs towards one country or another.

China is India’s trade partner accounting for 16.3 Billion dollars of exports and 68.06 Billion dollars of Imports causing a negative trade balance of over 51 Billion Dollars. India cannot lower her trade barrier for Chinese imports for it will be the death knell of its domestic manufacturing capabilities. New Delhi can even push for only China specific duties, for it would violate WTO rulings – more importantly it would hurt 16 Billion Dollars  of exports, further widening the trade deficit.




Further there is no US manufacturing that can be given a selective free pass. Even the goods imported from US, including Aircraft, Medical instruments and Heavy machinery – US companies are Value added traders or Assemblers at best. Most of the Manufacturing was being done in China and send to India.

The entire case of reciprocal tarries against India is myopic at best. Just like its writted on every US dollar ‘In god we believe’ for in US president’s intelect, we cannot.

 

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