The India-United States trade deal is unlikely to be concluded in the near term, and the reason has almost nothing to do with what the two countries are offering each other.
Washington is expected to announce new Section 301 investigations into several of India’s key export competitors, reportedly including Pakistan, Sri Lanka and the Philippines. Those investigations could eventually lead to tariffs on those countries. Until they are complete, India’s negotiators are in no hurry, because the number they care about is not their own tariff rate.
Section 301 gives the US Trade Representative authority to investigate foreign practices it considers unreasonable or discriminatory and burdensome to American commerce. In March, the USTR launched an investigation into structural excess capacity in manufacturing across sixteen economies including India, Bangladesh, Vietnam, Malaysia, Thailand, Cambodia, Indonesia, Mexico, Japan and South Korea.
Commerce and Industry Minister Piyush Goyal travels to the United States for the G20 Trade Ministerial from 30 September, but a final agreement around that visit looks unlikely unless the competing-exporter question is addressed. Timelines and subjects for the proposed investigations have not been decided.
The position India is holding is the correct one and it is worth stating plainly, because it is the single most commonly misunderstood thing about competitive advantage.
A tariff rate is not a cost. It is a position in a queue.
If India secures eighteen percent and Vietnam has twelve, India has lost, regardless of how good eighteen sounds against what it was paying before. If India secures twenty-two and everyone it competes with has thirty, India has won, and the twenty-two is irrelevant in itself. The buyer in Ohio is not comparing this year’s landed cost with last year’s. They are comparing four quotes that arrived on the same morning.
Every operator who supplies a category rather than a product lives inside this and mostly refuses to accept it. A roaster negotiating freight terms gets a fourteen percent improvement and celebrates, then discovers their two competitors got twenty because they used the same broker who was clearing a backlog. The absolute saving is real and the competitive position went backwards.
Which changes what you should actually be negotiating for. Not the best rate you can get, but a rate you know to be better than the people you bid against, and if possible some assurance it will stay that way. That second part is what India is also seeking: an assurance it will not face additional tariffs after a deal is signed, which is protection against the queue being reshuffled the week after.
The history here is relevant. The two sides reached an initial understanding in February, and India has previously enjoyed an eighteen percent rate that put it below Bangladesh, Vietnam, Sri Lanka, Taiwan, Pakistan, Indonesia, Malaysia and Thailand. The current stall is about restoring that relative position rather than any absolute number.
India has already faced a separate Section 301 investigation of its own.
Nobody is arguing about eighteen percent. They are arguing about eighteen relative to what.
Source: The Hindu, “India-U.S. trade deal unlikely until competitor countries probed, tariffed”
