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Info Service on WTO and Trade Issues (Mar25/02) Geneva, 4 Mar (D. Ravi Kanth) — United States President Donald Trump has decided to impose a 25% tariff on all imported goods from Canada and Mexico from 4 March, while seemingly remaining rather ambiguous on whether he will press ahead with an additional 10% tariff on all goods from China, a development that could trigger a tit-for-tat trade war while hollowing out the relevance of the World Trade Organization, said people familiar with the development. “Tomorrow, tariffs – 25% on Canada and 25% on Mexico – and that’ll start,” President Trump told reporters at the Oval Office. In issuing restrictions on his two North American trade partners who had agreed to conduct their trade on a zero tariff basis under the United States-Mexico-Canada Agreement (USMCA), President Trump said, “So they’re going to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs.” In pressing ahead with imposing tariffs on his free trade agreement partners, President Trump appears to be sending a clear signal that any future trade agreements with countries such as India, are unlikely to provide any predictability, legal certainty and guarantees, said people familiar with the development. Against the backdrop of the latest seemingly “imperialistic” actions by President Trump, which will come into effect on 4 March, India needs to be cautious and not rush into concluding any free trade agreement, as things could suddenly change, said people familiar with the development. India is seeking to conclude two bilateral free trade agreements – one with the US and the other with the European Union – in the next ten months, as the Indian trade minister, Mr Piyush Goyal, apparently departed for Washington on 3 March, according to news reports in several Indian media outlets. The news reports suggest that Mr Goyal’s sudden visit to the US appears to be aimed at seeking “clarity” as well as to discuss the broad contours of the proposed $500 billion bilateral free trade agreement between the US and India. Ahead of the visit and immediately after the return of Indian Prime Minister Mr Narendra Modi from his official visit to the White House, India reduced the import tariff on bourbon whiskey from the US to 50% from the existing rate of 100%, as is being imposed now on British spirits like Scotch whiskey. India reduced the tariff from more than 75% to 25% on Tesla vehicles imported from the US, in what appears to be a move to please President Trump’s key advisor Elon Musk, several media reports in India have suggested. Before the start of actual bilateral negotiations with the US, which Mr Goyal has reportedly described as the “mother of all deals”, he is seeking to discuss how India’s core concerns in agriculture are going to be addressed, according to a report in the Business Standard on 3 March. The Indian minister is expected to meet with the new US Trade Representative (USTR), Ambassador Jamieson Greer, and the US commerce secretary Howard Lutnick this week, the report in Business Standard has suggested. Paradoxically, several Indian think tanks have already voiced support for reducing tariffs and bringing them even closer to zero to avoid a likely retaliatory action if India fails to yield to President Trump’s demands. “If countries retaliate with counter tariffs, Trump is likely to escalate further, triggering a downward spiral that could harm partners like India,” according to New Delhi-based think tank Global Trade Research Initiative, as cited by the Business Standard. “To avoid this, India may absorb new Trump tariffs without direct retaliation … instead of engaging in a trade conflict, India should quietly reduce its dependence on the US by avoiding preferential treatment in oil purchases, defence deals, or other areas,” the think tank argued. Mr B V R Balasubramanyam, former Indian commerce secretary who led the negotiations for India during the WTO’s 12th ministerial conference (MC12) in Geneva in June 2022, and who currently heads India’s Policy Commission, suggested that India needs to cut tariffs for its own good on grounds that tariffs do not protect any country, according to a news report in the Economic Times on 21 February. By merely focusing on reducing tariffs without considering other strategic issues, India is seemingly overlooking some structural disparities, particularly at a time when one billion people cannot even afford to spend on normal goods because of their low per capita income, said a former Indian trade negotiator. A bilateral free trade agreement with the US raises questions, given the stark structural disparities between the two nations. For instance: * Population: India’s 1.4 billion people far exceed the US population of 347 million. * Income levels: The US per capita income of $37,683 is 16 times higher than India’s $2,343. * Agriculture: Nearly 800 million Indians depend on agriculture, compared to just 25,000 heavily subsidised US farmers. * Workforce: India’s workforce, including both organised and unorganised sectors, stands at approximately 565 million, dwarfing the US workforce of 168 million. * Industrial structure: India’s economy relies heavily on fragmented small and medium sized enterprises, unlike the US’s more consolidated industrial base. India currently enjoys a trade surplus of $46 billion with the US, which seems like a proverbial drop in the ocean compared to the overall US trade deficit of $1.2 trillion in goods, according to a report in the Wall Street Journal on 28 February. Over the past several years, the US has been issuing counter-notifications against India for its subsidy expenditure for rice having allegedly breached the de minimis limit of 10% of the value of agricultural production under WTO rules. Whenever the issue is raised at the WTO, India has rightly justified it under the Bali interim agreement, which was mandated to be made permanent. However, the US and several farm-exporting countries have consistently blocked a permanent agreement, said people familiar with the negotiations. Against this backdrop, if Washington were to demand that India reduce its subsidy for rice now and later for wheat in the bilateral free trade negotiations, India could be compelled to forego the minimum support price and other subsidies, said people familiar with the negotiations. Under the proposed bilateral free trade agreement negotiations, India’s exports of generic drugs, which are currently valued at around $13 billion, could come under the hammer, said an executive of pharmaceutical company Lupin in an interview given to CNBC on 3 March. In a similar vein, India’s rising exports of auto parts to the US could be another casualty, said a former Indian trade negotiator. “NAKED IMPERIALISM” The current phase of developments in global trade history seems to reflect an unstoppable litany of unilateral threats and “partitioning” of the world, said a former Indian trade negotiator during the Uruguay Round, preferring anonymity. The Trump administration’s actions on the trade front seem to be not only smashing the multilateral trading system to pieces but more worryingly, destroying the overall global architecture from human rights to trade, the negotiator said. Given President Trump’s threats to take back the Panama Canal, buy Greenland from Denmark for its rare earth minerals, the takeover of Ukraine’s rare earth mineral deposits, and even the proposed “annexation” of Canada and declaring it as the 51st US state, the world seems to be entering a phase of US “imperialism”, said people who asked not to be identified. In raising issues like the allegedly illegal supplies of fentanyl from China, Mexico, and even Canada, the echoes of the Opium Wars of the mid-19th century are being reverberated, said a Sinologist, who preferred not to be quoted. In an article in its Leaders column on 27 February, titled “Donald Trump has begun a mafia-like struggle for global power,” the Economist magazine said the rupture of the post-1945 order is gaining pace. Several US newspapers and rating agencies seem to be predicting that President Trump’s proposed tariffs and other policies are slowing down US economic activity while contributing to inflation. +
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