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India-US Trade Talks
Context:`
As New Delhi explores tariff reductions on a range of US products, Washington, DC is particularly focused on expanding agricultural exports to India. The US is seeking tariff reductions in India’s traditionally high-protection agricultural sector, making it a key agenda item in the ongoing bilateral trade negotiations.
US Push for Agricultural Exports
- Priority for Trump: Agricultural exports have emerged as a priority for the Donald Trump administration, which aims to enhance US trade competitiveness.
- Offensive Interest: A source familiar with the discussions stated that boosting agricultural exports is an “offensive interest” for the US, given its strategic focus on increasing outbound trade.
- High Indian Tariffs: Despite India’s recent tariff reductions on various items in the Union Budget, a White House statement on reciprocal tariffs pointed out that Indian agricultural tariffs remain significantly higher than US tariffs on Indian goods.
- The statement highlighted that while the US applies an average Most Favored Nation (MFN) tariff of 5% on agricultural goods, India’s average MFN tariff stands at 39%.
India’s Perspective: Balancing Tariffs and Market Access
- Indian officials believe that lowering agricultural tariffs could enhance overall trade in the sector and improve market access for Indian agricultural exports in the US.
- Currently, India exports basmati rice, spices, cereals, dairy, and poultry products to the US, with an annual trade value of approximately $4 million.
High Protectionism and Risks in Agriculture Trade
- Agricultural goods in India have historically been shielded from external competition and have remained outside many trade agreements, even with countries like Australia that prioritise agricultural market access.
- Experts warn that India’s high agricultural tariffs could expose the sector to reciprocal tariffs from the US, which is set to introduce new measures in April.
- A Global Trade Research Initiative (GTRI) report noted that the hardest-hit sector due to US reciprocal tariffs will be fish, meat, and processed seafood, with $2.58 billion in exports facing a 27.83% tariff differential.
- Tariff differentials indicate the difference in tariff rates applied to Indian exports compared to those imposed on other countries or product categories.
- Shrimp exports, a major component of India’s seafood trade, are expected to lose competitiveness.
- Processed food, sugar, and cocoa products, valued at $1.03 billion, face a 24.99% tariff hike, making Indian snacks and confectionery more expensive in the US market.
- Edible oils, with $199.75 million in exports, will face a 10.67% tariff increase, affecting coconut and mustard oil costs.
- Alcohol, wines, and spirits will be hit hardest, with a 122.10% tariff increase, though current exports in this category remain low at $19.20 million.
- Live animals and animal products face a 27.75% tariff differential on $10.31 million worth of exports.
- Tobacco and cigarettes, valued at $94.62 million, will remain largely unaffected as the US already imposes steep 201.15% tariffs, resulting in a negative tariff differential (-168.15%).
Lessons from US Trade Deals
- USMCA: The United States–Mexico–Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA) to provide better access for US dairy producers in Canada.
- The deal eliminated Canada’s Class 6 and 7 milk pricing systems, which had allowed Canadian dairy products to undercut US prices.
- USMCA also ensured fair wheat trade by requiring Canada to abolish its discriminatory grading system, allowing US wheat growers to compete more effectively.
- US-China Trade Deal: Similarly, the US-China trade deal, signed during Trump’s first term, sought to enhance US agricultural exports to China.
- The agreement mandated China to import at least $12.5 billion more US agricultural goods above the 2017 baseline in 2020 and an additional $19.5 billion above the 2017 baseline in 2021.
- The deal also eliminated non-tariff barriers, such as China’s previous age-based restrictions on US beef imports.
