Ahead of the India-US deal, strike a careful balance

Following the US Trade Representative’s proposal to levy tariffs on 60 countries under Section 301 of the US Trade Act, 1974, the government has introduced a new section in the foreign trade policy regarding forced labour. India is not the only country to do so — Indonesia, Canada, Cambodia and Peru have responded with similar commitments after the USTR’s proposed tariffs. Simultaneously, India has sought a review of the USTR’s proposed tariffs of 12.5 per cent, alluding to inconsistencies in its examination. The country’s tariff challenges don’t end here. US President Donald Trump’s tariff policy is, as of now, operationalised through Section 122 of the Trade Act. However, the 10 per cent universal rate currently levied can only be imposed for at most 150 days (without Congressional approval), which end on July 24. Trump is trying to reinforce the tariff wall through other pathways. Alongside the investigation into forced labour, USTR is examining the issue of “structural excess capacity and production in manufacturing sectors” in economies, including India. The outcome of that investigation , and if it attracts additional tariffs, is yet to be released.

This, however, is not the only contentious area — energy is another lever. A few days ago, a group of US senators unveiled a new version of the Russia sanctions Bill that proposes to levy tariffs of up to 100 per cent on the top five buyers of Russian oil and natural gas — China, India, Slovakia, Hungary and Azerbaijan. Imports from Russia account for a significant share of India’s energy basket. Here, too, New Delhi has taken US concerns on board — PSUs have signed a deal to import 10 per cent of LPG requirements from the US.

In the recent past, the Indian government has pushed through trade deals with countries such as the UK and Australia, as well as the EU. A deal with the US now —the largest economy in the world — will go a long way in reducing the uncertainty that has marred relations between the countries, while expanding trade. The upside for both countries is significant. On its part, the White House will likely continue to exert pressure on India in order to extract maximum concessions. As Delhi moves ahead to expand its market and protect its interests, it will have to carefully navigate its way, mindful of an unpredictable White House.