Prime Minister Narendra Modi will need all the dexterity in the world to duck googlies and take a clean shot, even while keeping the diplomatic game still in ‘gentleman’s’ territory this week during his US trip.
Not the easiest thing to do when you’re up against the epitome of unpredictability called Donald John Trump, who’s already fired his salvo with tariffs on steel — just hours before Air India One took to the skies on its long route across the seven seas.
It is still not a month for Trump Part Deux, but the executive orders come as if in a deluge. On Day 22 of his presidency, the 47th President of the US signed off on a 25 per cent import tariff on steel and aluminium, a move that is set to directly affect India’s trade and domestic prices in more than one way.
This, just days after India’s budget announcement after which, it was believed, would help India dodge Trump’s bullets aimed at trade partners who don’t play ball.
In the Union Budget on February 1, Finance Minister Nirmala Sitharaman had proposed a basic customs duty cut on 40 items. This included items like motorcycles, cars and smartphone spare parts.
Trump, during his earlier presidency, had singled out India’s high duties on bikes, mentioning American brand Harley Davidson, even going to the extent of reciprocating by putting restrictions on India’s Alphonso mango imports into his country. And, in the recent past, Elon Musk, who is now Trump’s right-hand man, had cribbed about India’s high duty limits that kept his electric car brand Tesla away from the Indian market.
While that now seems like just a teaser to the real thing being mounted with India in the crosshairs, the hope that the budget cuts would ease the pressure being put on by Trump; the US president had previously called India “a big abuser” of trade.
A day later, when Trump announced higher duty on China, Canada and Mexico — trade partners he had accused of taking undue advantage of US trade, India was conspicuous by its absence in the list, considering the administration’s previous pronouncements. It seemed the budget moves had placated the Trump administration.
However, it proved to be the lull before the storm. Modi’s visit has been preceded not just by the tariff hike, but comments like those by Economic Adviser Kevin Hassett who said overnight that India has high tariffs that lock out imports, and that Modi has a lot to discuss during his meetings with the US president.
The strategy being pushed by India, which Modi will inform Trump and his team, will be that the country has undertaken a comprehensive revision of India’s tariffs on imports, and that the budget announcement was just a beginning. India’s aim will be to bring rates down to the levels of the ASEAN countries of South East Asia. There is already talk of a mini trade deal in the offing.
However, while India may not have much of options but to acquiesce to big brother, it does have ramifications on three levels. First, the 25 per cent tariff will make India’s steel and aluminium exports, which topped 4 billion dollars last year, less competitive in the US market.
But worse will be the larger, second, scenario. Since the tariff impacts other countries like China, too, it could just see those countries redirecting their steel and aluminium at cheaper rates to India, thus flooding the domestic market and making local manufacturers suffer. According to the Indian Steel Association, this could slash up to 85 per cent of steel exports to the US, which could, in turn, be redirected into the Indian domestic market.
There is a third scenario which many are yet to consider, but could be deadly for India’s export-based future growth strategy. Anubhav Kathuria, managing director of Synergy Steel, pointed out how the last time the US imposed such tariffs on steel, it led to a domino effect. “We saw ripple effects in the global economy fearing a diversion of Chinese steel exports from the US to the European Union, the latter also restricted imports, negatively impacting Indian exports to the EU. This measure could again trigger trade shifts globally,” he said.