Context: Trumps’ ‘America First Trade Policy’ is set to review existing US trade agreements and sectoral trade agreements. This holds significance for India, which recorded a $50 billion trade surplus with the US in 2023, compared to $25 billion in 2019.
The US has also indicated that appropriate measures will be taken to counter China’s currency manipulation.
Relevance of the Topic: Prelims: Trends of US-India trade; Generalised System of Preferences; Currency Manipulation
India-US Bilateral Trade
- Trade Partnership:
- The US is India’s largest trading partner.
- The US is also one of the few countries with which India had a trade surplus in FY 2023-24.
- In FY24, the bilateral trade between India and the US stood at a record US $ 118.2 billion, a slight decline from US$ 128.78 billion in FY22.
- In FY24, India had a trade surplus of US$ 36.8 billion with the US.
- The US is the 3rd largest investor in India with cumulative FDI inflows of US$ 65.19 billion from April 2000-March 2024.
- India’s major exports to the US: Engineering goods, Electronic goods, Gems and Jewellery, Pharmaceutical Products, Light crude oil and petroleum, electrical, and others.
- India’s imports from the US: Mineral fuels and oils, Pearls, precious, and semi-precious stones, Nuclear reactors, boilers and machinery, Electrical machinery etc.
America First Trade Policy and its Impact on India
- Review of Trade deficit: Trump’s government is set to investigate US’s annual trade deficits in goods, as well as the economic and National Security implications of such deficits.
- Tariff war:
- During his first term, Trump imposed 25% tariffs on steel and 10% on aluminium from India and other countries, invoking National Security provisions.
- He also revoked the Generalised System of Preferences (GSP).
- Impact for India:
- Vulnerability to tariffs:
- India’s consumer goods exports, such as pharmaceuticals, gems and jewellery, and marine products, are particularly vulnerable to US tariffs due to the trade imbalance.
- India recorded a $50 billion trade surplus with the US in 2023, compared to $25 billion in 2019.
- Impacts of GSP Revocation: Revoking the Generalised System of Preferences (GSP) impacts India, as the preferential trade agreement benefits India the most.
- Vulnerability to tariffs:
What is the Generalised System of Preferences (GSP)?
- The GSP is a non-reciprocal preferential treatmentsystem through which developed countries eliminate or reduce duties on eligible products originating in developing countries.
- Preference-giving countries unilaterally determine which countries and which products are included in their schemes.
- Each developed country has customised its own GSP programme to identify qualification criteria it deems important for their economy.
- GSP promotes economic development by eliminating duties on thousands of products when imported from a designated beneficiary countries and territories.
- Is it WTO Compliant? Yes. The Enabling Clause under the World Trade Organisation is the legal basis for the Generalised System of Preferences.
What is Currency Manipulation?
- The US has indicated that appropriate measures will be taken to counter China’s currency manipulation.
- Currency manipulation happens when governments try to artificially tweak the exchange rate to gain an unfair advantage in trade.
- The US Treasury department defines currency manipulation as when countries deliberately influence the exchange rate between their currency and the US dollar to gain "unfair competitive advantage in international trade".