Context: Agricultural goods receive high protection in India and have largely remained outside trade agreements. India is considering a range of items for tariff reductions on US products, however, the United States is particularly interested in reduction of tariffs in the agricultural sector to export more agricultural goods to India.
Relevance of the Topic: Prelims: Key trends in the US-India Trade relations.
India-US trade in Agricultural products
- High protection in India:
- India has traditionally maintained high tariffs on agricultural imports to protect its domestic farming sector, which is highly sensitive and politically significant.
- Despite tariff reductions on select products in recent Union Budgets, agriculture remains a protected sector.
- US Agricultural export interests:
- The American agricultural sector (especially in the Midwest) forms a key voter base for former President Donald Trump, influencing US trade policies.
- Increasing agricultural exports is an offensive interest for the US, aiming to support domestic farmers and strengthen economic ties.
- Tariff rates comparison:
- India’s average applied Most Favoured Nation (MFN) tariff on agricultural goods: 39%
- The US average applied MFN tariff on agricultural goods: 5%
- Implications:
- High Indian tariffs on agricultural products lead to trade imbalances and hinder the growth of US exports to India.
- The disparity prompts US demands for reciprocal tariff reductions, which could potentially benefit both sides through enhanced trade volumes.
India’s agricultural exports to the US
- Key export items: Basmati rice, spices, cereals, dairy, and poultry products.
- Export value: Approximately $4 million annually.
- Potential gains from tariff reductions:
- Lowering tariffs could improve the market access for Indian agricultural goods in the US.
- Enhanced access could particularly benefit sectors like basmati rice, processed foods, and spices.
Sectoral vulnerabilities in Indian agriculture from US Reciprocal Tariffs (As per GTRI Report):
- Seafood (Fish, Meat, Processed Seafood):
- Exports worth $2.58 billion face a 27.83% tariff differential.
- Shrimp, a key export item, is likely to lose competitiveness in the US market.
- Processed Foods, Sugar, and Cocoa:
- Exports worth $1.03 billion affected by a 24.99% tariff increase.
- Indian snacks and confectionery products will become costlier and less attractive to US consumers.
- Edible Oils: Coconut and mustard oil exports valued at $199.75 million face a 10.67% tariff increase.
- Alcohol, Wines, and Spirits: Exports of $19.20 million affected by a steep 122.10% tariff hike.
- Live Animals and Animal products: $10.31 million in exports face a 27.75% tariff differential.
- Tobacco and Cigarettes: Despite a high US tariff of 201.15%, Indian exports worth $94.62 million remain largely unaffected due to an already negative tariff differential (-168.15%).
Also Read: Reciprocal Tariffs by the U.S.
Comparison in Global Context
- United States - Mexico - Canada Agreement (USMCA):
- Signed during Trump’s tenure to replace North American Free Trade Agreement (NAFTA) and expand the US agricultural market access.
- Key Provisions:
- Removal of Canadian Class 6 and 7 milk pricing programs to prevent undercutting of US dairy prices.
- Reforms in Canada’s wheat grading system to ensure fair competition for US wheat growers.
- Impact: Significant increase in the US dairy and wheat exports to Canada.
- US-China Trade Deal (2020-2021):
- Focused on boosting US agricultural exports amid the trade war.
- Key Provisions:
- China agreed to purchase US agricultural products worth $12.5 billion above the 2017 baseline in 2020 and $19.5 billion above the same baseline in 2021.
- Removal of non-tariff barriers, such as lifting age restrictions on US beef imports.
- Outcome: Enhanced market access and increased agricultural trade between the two economies.