WASHINGTON — President Trump has decided to strip India of a special status that exempts billions of dollars worth of Indian exports from American tariffs, raising new trade tensions with the world’s second most populous country.
The Office of the United States Trade Representative said on Monday night that India and Turkey would no longer be eligible for preferential market access to the United States. While the decision to terminate Turkey’s status stemmed from that country’s economic development, the move against India was retaliatory. It came after a year of failed efforts by the Trump administration to compel India to lower its trade barriers, including the tariffs it charges on American goods.
Mr. Trump’s decision to confront India over its trade practices ratchets up trade tensions at a moment when the administration has been trying to ease frictions with China, which have rattled global financial markets and unsettled businesses.
But India’s high tariff rates have been a major source of frustration for Mr. Trump, who has repeatedly assailed India for charging steep tariffs on American motorcycles. The president routinely criticizes India’s “unfair” trade practices and highlighted the disparity between how the United States and India treat imports in sharply worded remarks during last weekend’s Conservative Political Action Conference in Washington.
“India is a very, very high-tariff nation, and they charge tremendous, tremendous numbers,” Mr. Trump said, adding that he wanted to impose a “reciprocal tax” on India.
Mr. Trump frequently cites Harley-Davidson when complaining about India’s trade practices, criticizing the country for charging 50 percent duties on Harleys and other motorcycles. While Harley-Davidson does sell motorcycles in India, it has moved much of that production abroad to avoid tariffs and has opened a factory outside New Delhi. Most of the 3,000 Harleys sold in India last year avoided the tariffs.
Beyond motorcycles, India has angered American medical device makers with price caps on items such as cardiac stents and knee implants. New policies restricting Visa, Mastercard and American Express also kicked in last year, and Walmart and Amazon have been upset about the new e-commerce policies recently imposed in India.
The United States and India engaged in $126.2 billion worth of trade in 2017, according to United States trade representative, with the United States running a goods and services deficit of $27.3 billion. About $5 billion of Indian exports to the United States were eligible for reduced tariffs under the Generalized System of Preferences program, or G.S.P. According to India’s Ministry of Commerce and Industry, the program has allowed for $190 million per year in duty reduction.
“It’s survivable, but painful nonetheless,” said Richard Rossow, an expert in United States-India relations at the Center for Strategic and International Studies.
Mr. Rossow noted that the tariffs could be enough to encourage American importers to buy some products from Mexico or Vietnam instead of India. The program covered imports of items such as automobile parts, agricultural products, jewelry and handicrafts.
For its part, India has been upset by the steel and aluminum tariffs that the United States imposed last year as well as restrictions on H-1B visas for foreign workers and spouses of H-1B visa holders.
The Trump administration initiated a review of India’s preferential trade status in 2018, and in recent months there have been increasing signs that negotiations were going poorly. Last year, Robert Lighthizer, the United States trade representative, was expected to travel to India but ended up not going. In February Wilbur Ross, the commerce secretary, backed out of a planned trip and blamed bad weather.
Mr. Lighthizer’s office said this week that, despite “intensive engagement,” India had failed to take the necessary steps to keep its tariff exemptions. The United States has been particularly concerned about market access for dairy and medical devices.
“India has implemented a wide array of trade barriers that create serious negative effects on United States commerce,” the agency said in a statement.
India pushed back against such accusations on Tuesday, arguing that it was willing to work with the United States but that some of the demands were unreasonable.
“India was able to offer a very meaningful way forward on almost all the U.S. requests,” the Ministry of Commerce and Industry said in a statement. “In a few instances, specific U.S. requests were not found reasonable and doable at this time by the departments concerned, in light of public welfare concerns reflective of India’s developing country status and its national interest.”
The change to India’s trade status will take place in 60 days. Lawmakers and business groups expressed hope on Tuesday that a deal could still be worked out.
“The Indian government hasn’t engaged enough to address market access issues,” said Senator Charles E. Grassley of Iowa, the Republican chairman of the Senate Finance Committee. “For the sake of the many Americans and Indians who relied on G.S.P. benefits, I hope that India will work to quickly address these legitimate concerns.”
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