27-05-2025
India, US tariff dispute is a battle of principles
India-US trade relations have witnessed a serious shake-up over the last few weeks, with India maintaining a principled position of sovereignty. This comes in the context of the turmoil initiated by the heavy-handedness of the Donald Trump-led US administration that risks undermining the global trade order established over the last three decades in the form of the World Trade Organization (WTO).
The advantage of a multilateral platform like WTO is that it provides a framework that all countries can leverage to protect their interests. The recent strategy by the US government to undermine the global framework while striking multiple bilateral trade treaties is a concerted effort to squeeze their trading partners to the maximum possible extent.
In particular, the US President has been trying to pressure India by repeatedly singling it out as 'one of the highest taxed or tariffed countries in the world', even as both countries work on a bilateral trade deal. For instance, Trump recently suggested that India has 'offered' to cut 100% tariff on all US imports, and that he asked Apple Inc. to not shift its manufacturing base to India. This adds to the recent geopolitical tension India had with its neighbour where the US President claimed to have negotiated a de-escalation by leveraging the trade deal. While India has diplomatically refuted much of these tall claims, it has also initiated a firm pushback by leveraging the WTO platform.
India and the US have had a history of disagreements over the WTO platform. Back in 2018, the previous Trump administration imposed additional duties on steel and aluminium imports from India. India retaliated with customs duties on 28 products from the US in 2019. The issue was eventually resolved under the Biden administration where both countries settled seven WTO disputes via mutual cooperation.
Once the US administration chose to reapply the tariffs (although this time, it was part of its global tariff war), India challenged the validity of the same at WTO. India argued that the provisions do not follow the WTO norms under the General Agreement on Tariffs and Trade (GATT), 1994, and Agreement of Safeguards; one critical condition of which is that the country must give advance notice to WTO before it imposes any such tariffs. The US response was that the tariffs were not under safeguard provisions but were under national security actions, which do not come under the purview of WTO.
In the course of these discussions, the US government tried to arm-twist India by challenging the latter's Production Linked Incentive (PLI) scheme for specialty steel. The US argued that such subsidies are inappropriate given the global over-capacity in the metal. India duly responded that the PLI schemes are valid under WTO norms and are designed to help develop self-reliance in speciality steel given the country is a net importer for such products. India also argued that the subsidy it gives is modest compared to the Chinese subsidy that amounts to over $50 billion!
India has now communicated to the WTO its intention to impose retaliatory measures via the 'suspension of concessions and other obligations' in response to the US tariffs. India rejects the US argument of national security and insists that the tariffs need to be scrutinised via consultations as prescribed under the Agreement of Safeguards. Effectively, the Indian notification, while following WTO norms, argues that the same norms must be applicable for the US imposition as well.
This initiative was a well calibrated response just before India's commerce and industry minister commenced his Washington trip to discuss the trade agreement. India is communicating to the global community that while it negotiates a trade agreement with the US, it does not intend to do so by undermining the WTO framework like the latter.
India is signalling that the US-India trade agreement will be under mutual cooperation and not unilateral pressure. The recently concluded UK-India Free Trade Agreement (FTA), between the sixth-largest and the fourth-largest economies of the world, is an example where India highlighted the importance of mutual cooperation within a globally-accepted framework.
Such a nuanced position from India, which is poised to emerge as the third-largest economy in the world by 2028, reflects a maturity and sense of responsibility that comes with such a status. Even as the outcome of these negotiations are yet to be realised, the principled position taken by India presently should be lauded for its intent.
Amitayu Sengupta is senior research consultant, Chintan Research Foundation. The views expressed are personal.
