India had been the biggest beneficiary of the Generalized System of Preferences, a program designed to help developing countries sell to U.S. consumers. But Trump, irritated by the United States’ hefty trade deficit with New Delhi, ended India’s favorable trade status on June 5. Last year, India sold $54.4 billion worth of goods to the United States but imported a little more than $33 billion in U.S. products.
Though India’s action affects an estimated $241 million in imports — a pittance compared with the numbers involved in the White House’s trade battles with China and Mexico — it’s another pressure point in an increasingly tense and uncertain global economic outlook. The tariffs took hold Sunday, just ahead of next week’s G-20 summit in Osaka, Japan, where economists and business leaders expect Trump and Chinese leader Xi Jinping to discuss the trade.
“This is a big deal,” tweeted Michael Kugelman, deputy director of the Asia Program at the Wilson Center, a Washington-based think tank. “Not as much because of the value of the goods soon to be taxed … but more so because until now, Delhi’s reaction to Washington’s moves had been strikingly restrained.”
What began as a tool to cut down on U.S. trade deficits has quickly morphed into a defining feature of trans-Pacific trade. Tariffs have become Trump’s preferred means of exerting political pressure on other nations, even in matters not directly related to trade, such as his threat last month to impose tariffs on Mexico over migration. Although Trump has repeatedly — and inaccurately — said that other countries bear the burden of the tariffs, trade and business experts say the reality is that U.S. businesses pay the levies first and pass those costs on to consumers.
In a letter to the Trump administration last week, 661 companies warned that further tariffs on China would devastate the economy, predicting the loss of 2 million U.S. jobs and $2,000 a year in added costs for the average American family.
“We know firsthand that the additional tariffs will have a significant, negative and long-term impact on American businesses, farmers, families and the U.S. economy,” the companies said. “Broadly applied tariffs are not an effective tool to change China’s unfair trade practices. Tariffs are taxes paid directly by U.S. companies … not China.”
The potential fallout from the U.S.-China conflict extends well beyond their respective borders, political leaders and economists say. In a G-20 briefing note, Christine Lagarde, managing director of the International Monetary Fund, warned that the last round of proposed tariffs against China could erase $455 billion in global gross domestic product in 2020.
“There is strong evidence that the United States, China and the world economy are the losers from the current trade tensions,” Lagarde wrote.
But in pre-summit meetings in Japan, U.S. Treasury Secretary Steven Mnuchin insisted the trade war wasn’t dampening global growth or straining the domestic economy.
“I don’t think in any way that the slowdowns you’re seeing in parts of the world are a result of trade tensions at the moment,” he told reporters, the New York Times reported.
The Indian government had been mulling higher penalties on U.S. exports since last summer, after it was hit by Trump’s tariffs on aluminum and steel, but reportedly held back, leaving room for de-escalation through trade talks. Discussions are expected to continue when Secretary of State Mike Pompeo visits India this month.
“We remain open to dialogue, and we hope that our friends in India will drop their trade barriers and trust in the competitiveness” of their own companies, Pompeo said at a U.S.-India Business Council meeting last week, Reuters reported.