US tells India to cut tariffs as trade friction heats up

Ford, which has two plants in India including the Chengalpattu facility, above, has sought a reversal of the new tariffs on auto components. (Reuters)
Updated 23 February 2018
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US tells India to cut tariffs as trade friction heats up

NEW DELHI: US businesses and diplomats are pressing India to cut tariffs, industry and government sources say, after New Delhi’s move to increase customs duties on dozens of products to help its flagship Make-in-India drive aggravated differences over trade.
Ford, which has two plants in India, has sought a reversal of the new tariffs on auto components, while Apple is concerned its iPhones have become even more expensive in the price-conscious $10 billion smartphone market.
India and the US have built close political ties and Prime Minister Narendra Modi was in Washington last summer, bear-hugging President Donald Trump in his personalized style of diplomacy. But trade friction is casting a shadow.
A US State Department spokesperson in Washington said that India should lower trade barriers, which were holding back economic ties.
Trump has already called out India for its duties on Harley-Davidson motorbikes, and this month Modi ordered them cut to 50 percent from 75 percent for high-end bikes.
But that has not satisfied Trump, who pointed to zero duties for Indian bikes sold in the US, saying he would push for a “reciprocal tax” against countries, including US allies, that levy tariffs on American products.
“It is important that India make greater efforts to lower barriers to trade, including tariff and non-tariff barriers, which will lower prices to consumers, promote development of value chains in India,” said the State Department spokesperson, referring to Trump’s comments on motorbikes.
The US Congress has been pushing over the past year for greater pressure on India to dismantle economic barriers, and now House Republicans have raised the issue of the new round of duties with New Delhi.
“We conveyed our concerns to the Indian government last week to raising tariffs above WTO rates – especially as it relates to information technology,” a Republican aide in Washington said.
India announced higher import tax on electronics products such as mobile phones and television sets in December, and then on 40 more items in the budget this month. These included goods as varied as sunglasses, juices and auto components.
India says the move is aimed at giving local industry the chance to grow and is part of a broader plan to lift the share manufacturing makes up of GDP to a quarter, from around 15 percent, and create the tens of thousands of jobs needed for a young workforce.
US commerce department referred questions to the US Trade Representative’s (USTR) office in Washington, where a spokesman declined to comment.
The Indian commerce ministry did not respond to a request for a comment on the US criticism of the import taxes.
But a senior finance ministry official defended the decision to raise duties, saying it reflected a trend in other parts of the world.
“When all the major economies, including the US and China, are following protectionist policies, why are we being questioned,” the official said.
Bilateral trade between India and the US has grown to about $115 billion in 2016 from $20 billion in 2001. The US buys close to a fifth of India’s goods and services exports and its trade deficit has widened from $13 billion in 2006 to $31 billion in 2016.
The USTR’s office is “fairly negative” on India at this point and is analyzing the impact of the customs trade tariffs on various American companies, an industry source aware of the matter said.
“They are more vigilant than earlier, they are in bulldog mode under Trump,” the source said. A spokesperson for the USTR’s office declined to comment.
Even before the new round of hikes, India has been seen as one of the most protected major economies. The US had an average tariff rate of 3.4 percent on imported goods in 2016, compared with 13.5 percent for India, according to the World Trade Organization (WTO).
China, which the Trump administration is targeting for its trade practices, had an average tariff rate of 9.9 percent that year.
Apple, whose top-end iPhone costs nearly $1,700 after the company raised prices twice in recent months due to higher duties, is in talks with other firms on whether the issue could be raised at the WTO, an industry source said.
Apple did not respond to a Reuters request for comment.
Ford and European carmaker Volkswagen have written to Indian Finance Minister Arun Jaitley saying the new tariffs are going to hurt the auto sector and should be reviewed, sources said.
Anurag Mehrotra, Ford India’s managing director, said the company has invested $2 billion in the country and the government’s move would hit the automobile sector.
“Like many, we also see it as the return of protectionism,” Mehrotra said, adding he expected car prices to rise up to 4 percent due to new duties.
Andreas Lauermann, the head of Volkswagen’s India unit said it “remains a challenge to invest further” because of sudden tax hikes.


China accuses Trump of ‘blackmail’ after new tariffs threat

Updated 4 min 52 sec ago
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China accuses Trump of ‘blackmail’ after new tariffs threat

  • Donald Trump asked the US Trade Representative to target $200 billion worth of imports for a 10 percent levy, citing China’s ‘unacceptable’ move to raise its own tariffs.
  • China had offered to ramp up purchases of American goods by $70 billion to help cut its yawning trade surplus with the United States, whereas Trump had demanded a $200 billion deficit cut

BEIJING: Beijing on Tuesday accused Donald Trump of “blackmail” and warned it would retaliate in kind after the US president threatened to impose fresh tariffs on Chinese goods, pushing the world’s two biggest economies closer to a trade war.
Trump said on Monday he had asked the US Trade Representative to target $200 billion worth of imports for a 10 percent levy, citing China’s “unacceptable” move to raise its own tariffs.
He added he would identify an extra $200 billion of goods — for a possible total of $450 billion, or most Chinese imports — “if China increases its tariffs yet again.”
“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods and accept a more balanced trade relationship with the United States,” Trump said in a statement.
Last week, he announced 25 percent tariffs on $50 billion in Chinese imports, prompting Beijing to retaliate with matching duties on US goods.
The US leader warned Friday of “additional tariffs” should Beijing hit back with tit-for-tat measures.
“The trade relationship between the United States and China must be much more equitable,” he said in explaining his latest decision.
“I have an excellent relationship with President Xi (Jinping), and we will continue working together on many issues. But the United States will no longer be taken advantage of on trade by China and other countries in the world.”
China’s commerce ministry immediately responded by saying the US “practice of extreme pressure and blackmail departed from the consensus reached by both sides during multiple negotiations and has also greatly disappointed international society.”
“If the US acts irrationally and issues a list, China will have no choice but to take comprehensive measures of a corresponding number and quality and take strong, powerful countermeasures.”
The news hit stock markets in Asia, where Shanghai shed three percent in the morning, Hong Kong lost more than two percent and Tokyo was one percent lower.
Trump is moving forward with the measures after months of sometimes fraught shuttle diplomacy in which Chinese offers to purchase more American goods failed to assuage his grievances over a widening trade imbalance and China’s aggressive industrial development policies.
China had offered to ramp up purchases of American goods by $70 billion to help cut its yawning trade surplus with the United States, whereas Trump had demanded a $200 billion deficit cut.
The China trade offensive is only one side of Trump’s multi-front battle with the United States’ economic partners as he presses ahead with his protectionist “America First” agenda.
Since June 1, steel and aluminum imports from the European Union, Canada and Mexico have been hit with tariffs of 25 percent and 10 percent, respectively.
“This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods,” Trump said of China’s retaliatory tariffs.
“This is unacceptable.”
Two decades ago, China’s economy was largely fueled by exports, but it has made progress in rebalancing toward domestic investment and consumption since the global financial crisis erupted last decade — limiting the damage trade tariffs could inflict on Beijing.
Still, strong exports this year have lifted the economy, which is now showing signs of losing steam under the weight of Beijing’s war on debt, launched to clean up financial risks and rein in borrowing-fueled growth.
Initially, 545 US products valued at $34 billion will be targeted by China, mimicking the Trump administration’s tariff rollout.
Beijing wants to “demonstrate that things will be done their way or not at all,” said Christopher Balding, an economics professor at Shenzhen’s HSBC Business School, who believes Chinese policymakers prefer demonstrations of “power and control” over “technical policy rightness.”
“It is a game of chicken,” Balding said.
So far Beijing has targeted major American exports to China such as soybeans, which brought in $14 billion in sales last year, and are grown in states that supported Trump during the 2016 presidential election, as well as other politically important products.
Officials also drew up a second list of $16 billion in chemical and energy products to hit with new tariffs, though China did not announce a date for imposing them.
More American targets are likely to follow as soon as the Trump administration follows through with publishing an expanded tariff list.