Trump’s shift to tariff letters from trade deals may offer more time for India agreement

File photo of Prime Minister Narendra Modi and US President Donald Trump

US President Donald Trump on July 7 issued letters to more than a dozen nations informing them of higher tariffs from August 1, after pushing the pause on reciprocal duties from July 9. This could offer India more time to get an approval for a mini-trade deal that awaits a much-needed political push.

“India needs to wait and watch and see what others have got, if you do a deal too soon, it could be an uneven one,” a source aware of the developments said.

Trump is expected to deliver identical and unilateral letters to a bunch of nations throughout this month in an attempt to arm-twist them into trade deals, while the White House also confirmed that the US is close to striking agreements with few others and India is widely expected to be one of them.

These letters were issued to several trading partners with whom the US has failed to reach an agreement so far, ditching his administration’s “90 deals in 90 days” rhetoric. Notable among them were 25-percent tariffs each on Japan and South Korea, and while South Africa will face a levy of 30 percent, a massive 40 percent was imposed on Myanmar.

To be sure, these nations can return to the table and negotiate trade deals with the US to clinch favourable terms.

New Delhi too, therefore, no longer has to worry about steeper country-specific duties from Wednesday.

The US’s reciprocal tariffs, including a 26-percent on India, are no longer kicking in from July 9 after a three-month pause, possibly lending more time to an approval for a trade deal with India.

Sources aware of the developments already indicated, “India has offered what it has to offer and now it is up to Trump to decide.”

This after India drew clear red lines resisting demands for sweeping concessions for American farm and dairy goods. New Delhi is also seeking significant duty cuts for its labour-intensive exports such as textiles and leather.

While India is seeking exemptions from sectoral tariffs on steel and automobile parts too, the first set of tariff letters levies steeper duties over and above these, dashing hopes for such a reprieve.

Perhaps even more concerning is the tax on trans-shipment of goods, which were included in the first set of letters, set at the same rate as the reciprocal levies.

For example, while Trump levied a tariff of 35 percent on Bangladesh, any goods trans-shipped to "evade that higher tariff will be subject to the same tariff", according to the letter.

Despite a trade deal with the US, Vietnam was subject to a similar treatment.

Indian officials are already spooked after the unilateral way the deal with Vietnam was announced, slapping the Southeast Asian nation with a 20-percent reciprocal tariff and another 40-percent on trans-shipment.

To be sure, if Trump decides to reject India’s offer, in the absence of a trade deal, the South Asian nation may also theoretically receive a letter.

“The chances of a letter for India are less, even Trump would want an agreement with such a large country like India,” a second source said.

Commerce Minister Piyush Goyal just last week said that India does not broker trade deals on deadlines.

“An FTA (free trade agreement) should be a win-win. India never negotiates trade deals based on deadlines. Our focus is always on fairness and the country’s benefit,” Goyal told reporters on July 4.

The US has so far struck limited trade deals with the likes of United Kingdom, China and Vietnam.

India has been negotiating a scaled-down version of the first tranche of a Bilateral Trade Agreement (BTA) with the US to ensure that it escapes Trump's reciprocal tariffs.

The deadline for a more comprehensive BTA is this year’s fall.

This mini-deal is likely focussing on securing exemptions from the 26-percent reciprocal tariffs along with concessions on limited goods, while the BTA may address more contentious issues.

As the first source cited above said, “even if there is a trade deal there is no guarantee on higher tariffs, you need to appeal to the counterparty and it is now more of a function of how the US responds.”