Surprise Move: India Deals a Blow to the US Economy

We are talking about $857 million worth of agricultural products here - more than a third of the total volume of food imported from the United States. Why did New Delhi impose retaliatory import tariffs on Washington and why do experts consider this a "Chinese trace"? Here is Sputnik's article on this topic.

While China has been and remains the main front in Washington's trade war, President Donald Trump has also caused a major headache for Indian Prime Minister Narendra Modi. Photo: Sputnik

It all started last March when Trump announced his decision to impose a 25% import tariff on steel and 10% on aluminium. Indian metallurgists were hit along with their counterparts from Russia, China, Europe, Japan and other countries.

India has also been affected by its military-technical cooperation with Russia. In April, Rosoboronexport was blacklisted by the US under the Countering America’s Adversaries Through Sanctions Act (CAATSA), and Indian banks were forced to freeze $2 billion in funding for repairs to the Russian-leased Chakra nuclear submarine (Project 971 Shchuka-B). Otherwise, Indian banks risk losing the ability to conduct foreign trade transactions in US dollars.

In early May, Trump announced his withdrawal from the Iran nuclear deal, promising to formally reimpose sanctions on Iran and all countries cooperating with the Iranian regime. This was clearly aimed at China and India, the two largest buyers of Iranian oil.

However, the US President has delayed the sanctions, granting Beijing and New Delhi a 180-day waiver to find new suppliers. At the same time, according to Sputnik, the US State Department said that payments for services must be made through a special escrow account. The purchasing country must open this account, and funds transferred to Iran can only be spent on humanitarian aid goods that Washington has granted a license to purchase.

It should be noted that Trump did not agree to delay the sanctions out of the goodness of his heart. This was the result of difficult negotiations that lasted for six months. A source in the Indian Foreign Ministry told Sputnik about this in early November.

The size of India’s economy does not allow it to respond symmetrically to US tariffs. Unlike Beijing, New Delhi cannot engage in open confrontation with Washington (according to the World Bank, India’s GDP in 2017 was $2.6 trillion, China’s - $12.2 trillion).

Washington's aggression has led to Beijing and New Delhi, for the first time in a long time, shifting from economic confrontation to coordinated measures against US pressure. Although India and China are two strategic rivals in the Asia-Pacific region.

Meanwhile, New Delhi and Tehran have agreed to abandon the dollar in payments for oil supplies, switching to rupees from January, Charan Singh, chief executive of India's state-owned UCO Bank, told Reuters.

Earlier, India had reached a similar agreement with Russia. In early November, Russian Deputy Prime Minister Yury Borisov said that the contract for supplying India with S-400 Triumph air defense missile systems would be paid in Russian rubles. As planned, in the future, contracts for the supply of civilian products will also be paid in the national currency.

In effect, this means that India is no longer dependent on the US dollar for its import and export of staple commodities.

On December 21, Indian Foreign Minister Sushma Swaraj met with her Chinese counterpart Wang Yi in New Delhi. The media wrote little about that meeting, but it is hardly a coincidence that two weeks later, India decided to increase tariffs on a range of US imports, including apples, almonds, lentils, and walnuts. Furthermore, New Delhi warned that future restrictions would affect certain stainless steel products, boric acid, pipe components, and motorcycles.

It should be recalled that last fall, Beijing also imposed a 25% tariff on agricultural products from the US. This measure hit farmers who supply wheat, corn, dairy products, pork hard. The soybean market was hit the hardest – exports to China fell by 98%, causing a crisis of overproduction (soybeans are the largest US agricultural export to China, which accounts for about 60% of the soybean trade).

There simply aren't enough warehouses in the country to store soybeans. Even after warehouse rents rose 40 percent from a year ago, all the warehouses are full of soybeans that no one wants to buy. Farmers are forced to bury the soybeans.

Now India’s new measures could have similar consequences. It should be noted that the agricultural states were all states that supported Donald Trump in the 2016 presidential election. However, all things considered, he cannot count on farmers’ support in 2020.

To remedy the situation, the White House approved a $15 billion aid package for farmers hurt by the retaliation. However, due to a dispute with Trump over the construction of a wall on the US-Mexico border, lawmakers have refused to approve the 2019 budget, and all government spending is now frozen indefinitely. Including the farmer aid program.

It is no coincidence that India and China have come closer together in the past year after years of territorial disputes. The December 21 meeting in New Delhi was not the only one.

As a result, from now on, in the Asia-Pacific region, the two largest economies are acting against Washington, these two countries account for about 20% of US imports and 12% of exports. It is likely that in 2019, Trump will have difficulty balancing the trade balance.