HomeEconomy NewsIndia can absorb reciprocal tariffs, but BTA poses non-tariff risks: Ajay Srivastava of GTRI
India can absorb reciprocal tariffs, but BTA poses non-tariff risks: Ajay Srivastava of GTRI
Ajay Srivastava, Founder of the Global Trade Research Initiative, notes that India has largely been spared from tariffs, unlike China, Canada, and Mexico. He emphasises the importance of maintaining tariffs on passenger cars to safeguard the auto sector, which plays a crucial role in India's manufacturing GDP.
While reciprocal tariffs may have limited impact on India, a Bilateral Trade Agreement (BTA) with the US could introduce pressure on non-tariff issues such as intellectual property rights, digital regulations, and government procurement, warns Ajay Srivastava, Founder of Global Trade Research Initiative (GTRI).
In a conversation with CNBC-TV18, he highlighted that India’s industrial sector is already accustomed to zero-duty imports under existing free trade agreements (FTA). However, the real challenge lies in US demands beyond tariffs, which could reshape India’s trade policies in critical areas.
Q: These non-tariff barriers are not going to be included. Do you think the BTA- the bilateral trade agreement that has being negotiated is to that extent, likely to be a little clement to us?
A: I don't want to guess on anything, but, for example, so far, he has spared India, and we are hit by only two tariffs, one on steel and aluminium. Now I just discovered by listening to you, that 25% on autos and auto components. Unlike China and Canada or Mexico, he has not chosen to hit us so far and we hope for the best for the April 2 thing.
Q: First, I want a nomenclature clarified when we say BTA bilateral trade agreement, is it the same as FTA, or is it something less?
A: We have FTAs, PTAs, comprehensive economic partnership agreements, comprehensive economic cooperation agreements, bilateral investment treaties so these are all same, economic policy agreement, including they all indicate to a free trade agreement. These are different nomenclature, but they basically entail giving preferences to the partner countries. Each other partner countries, they entail preferences, tariff preferences, other preferences so this is an FTA only BTA is a fancy word.
Read Here | India should prioritise bilateral trade agreements, says NITI Aayog’s Ramesh Chand
Q: What products in India you think will get impacted. Dr Ramesh Chand tells us that our rice is very competitive, and wheat as well, because it gets MSP protection, is more or less protected. But on industry auto parts, I don't know- I believe we don't export so much of auto parts. We export truck parts. Which sectors do you think are vulnerable?
A: Our exports of auto parts are $2.8 billion to the US in the January to December 2024, so US Global imports are about $90 billion. We supply just $2.8 billion and us gets most from Mexico. Now imagine a scenario. He is hitting us with 25%, hitting everyone else also with 25% that means everybody is at the equal disadvantage, unless he gives exemption to Mexico or some other big country or a big supplier, so everybody is at equal disadvantage.
I don't think it will hit us hard and then auto tariffs, they are part of very tightly enmeshed global value chains. Some of the your US car makers, they are assembling cars in US, but they are buying auto components from India, and I don't think it will take a hit.
He also hit the passenger cars by 25% tariffs. I say, please go ahead. 25% hit us with 100% it doesn't make any difference. Our exports to us, they are declining. They will be less than $10 million this year. So our industry will not even notice any tariff differences. Will stop exporting to them. But the real danger is, if government takes corrective steps, which means government under pressure from US, cuts its own passenger car tariffs, that will be a real calamity.
I want to share a small example in 20 seconds. Australia had 25% tariffs on its passenger cars in late 80s, and more than 10 global manufacturers, they are making cars in Australia. Then Australia thought that 45% is too high a tariff. They cut it to 5% in the next 10 years, and every single auto manufacturer disappeared from Australia. Every single imported car in Australia is imported now. No manufactures, Australia is trying to woo with subsidies that you please come and set up shop again in Australia. Nobody is coming.
We should learn from this, that auto sector is very important. It accounts for third of manufacturing GDP of India. So even though Mr. Trump hits us with high tariffs on passenger cars, we should not try to lower the tariffs beyond a point. Some of course, from 100 to we can cut by certain percentage point. But you should never drastically lower it, because we there are no gains on this.
Q: When I spoke to Mr. Bhargava, he said that even if the Tesla car came at zero duty, he says, I can compete. I don't have a problem. The problem will only be if they say that they are excused of countervailing duty, because the auto industry in India pays between 28 and, even 40% GST. So long as that countervailing duty is imposed on the imported car, if it is from America, I don't have a problem. There are some people who worry that if the same thing is applied to BYD, we will have a problem, but if it is from American cars, we won't have a problem. You don't think so?
A: Tesla, we are hearing it may be coming from Germany or Thailand and we should also know what's the Chinese content in Tesla? It's not an American car. American brand is there, like Apple. Apple is a brand. It's manufactured in China, now in India and many other countries. Similarly, Tesla, how much of the Chinese content and battery is there in Tesla? I think tremendous, we need to study that. I am Mr. Bhargava, listening to you are on the same page. He is also saying some higher level of tariffs should be there. He is using the term CVD. I am using the term some tariff without telling the details what type of tariff it is.
Q: I read your note on the FTA itself. You are saying that even after the BTA or FTA is negotiated by India, we will still be at a disadvantage because they will have more interpretation powers?
A: The issue is that in most of the US FTAs, and even decisions at the WTO, they have been taken there is Fast Track authority. The US Congress, it authorises the US President to negotiate trade deals. When the deal is done, it is presented to the Congress. Congress can say yes or no. Can't modify it. Today, that fast track authority, it expired in 2021 and US President or negotiating team, has no authority to cut tariffs, so they are seeking other countries to cut tariffs only. It's slightly murky area for me. I would say we should deal with the reciprocal tariffs and not give too much energy, not waste too much energy on this, FTA or BTA, whatever we call.
Q: Overall our exports is $45 billion for FY24 isn't it? Overall Indian exports to the US?
A: Overall Indian merchandise exports to US in calendar year 2024 were $82 billion considering India data, $92 billion considering US data so it's high. However, point to be noticed is this about 90% of industrial goods, we already allow our FTA partners, like Japan, South Korea, ASEAN, zero tariff access to India.
India industry is well attuned to zero tariff imports on 90% of industrial goods, everything, almost except passenger cars and some more. My theory is that we should offer those 90% industrial tariff lines to the US. We agree to make tariffs zero from day one. Why don’t you also reciprocate and make your tariff zero from day one? So that will take care of 90% of US exports to India. All this tariff problem will go except for the agriculture, which account for less than 5% of US exports to India.
Q: I want to come back again to the industries that may be hurt. We were told that apparel and jewellery can be hurt is that right?
A: Apparel all the developed countries, including US or European Union, very cleverly, they already charge very high tariffs on the apparel. All the labour intensive goods - apparel, shoes, handicraft, they charge high duties so that they can have some controlling levers on developing countries and LDCs, so they already have high tariffs. The tariffs are comparable, so we won't be hit and I was talking to one of my friends in apparel industry. He was saying, we will be very happy to go for zero for zero on apparel.
Q: Finally, what you are saying is that as we approach April 2, we should not worry much if there are reciprocal tariffs, and the BTA is not that big a deal for us?
A: Because BTA goes beyond tariffs, US will force us to talk on intellectual property right, dilute your patent laws, allow access to government procurement, you dilute all your digital laws. For example, RBI mandate is there that financial data should be stored in the country. They will press us on all these issues, which we should avoid right now. Reciprocal tariff, as I say, 95% of US trade that is industrial goods we can absorb happily and before April 2, now it's too late, now we should make an offer. Their team is in Delhi. We should give a list to them. We will be happy to do cut the tariff to zero, on listed products from day one and you also agree to do that.
Also Read | Trump Tariff Impact: From Tata Motors to SAMIL, shares of Indian automakers fall up to 8%
In a conversation with CNBC-TV18, he highlighted that India’s industrial sector is already accustomed to zero-duty imports under existing free trade agreements (FTA). However, the real challenge lies in US demands beyond tariffs, which could reshape India’s trade policies in critical areas.
Below are the excerpts of his interview with CNBC-TV18.
Q: These non-tariff barriers are not going to be included. Do you think the BTA- the bilateral trade agreement that has being negotiated is to that extent, likely to be a little clement to us?
A: I don't want to guess on anything, but, for example, so far, he has spared India, and we are hit by only two tariffs, one on steel and aluminium. Now I just discovered by listening to you, that 25% on autos and auto components. Unlike China and Canada or Mexico, he has not chosen to hit us so far and we hope for the best for the April 2 thing.
Q: First, I want a nomenclature clarified when we say BTA bilateral trade agreement, is it the same as FTA, or is it something less?
A: We have FTAs, PTAs, comprehensive economic partnership agreements, comprehensive economic cooperation agreements, bilateral investment treaties so these are all same, economic policy agreement, including they all indicate to a free trade agreement. These are different nomenclature, but they basically entail giving preferences to the partner countries. Each other partner countries, they entail preferences, tariff preferences, other preferences so this is an FTA only BTA is a fancy word.
Read Here | India should prioritise bilateral trade agreements, says NITI Aayog’s Ramesh Chand
Q: What products in India you think will get impacted. Dr Ramesh Chand tells us that our rice is very competitive, and wheat as well, because it gets MSP protection, is more or less protected. But on industry auto parts, I don't know- I believe we don't export so much of auto parts. We export truck parts. Which sectors do you think are vulnerable?
A: Our exports of auto parts are $2.8 billion to the US in the January to December 2024, so US Global imports are about $90 billion. We supply just $2.8 billion and us gets most from Mexico. Now imagine a scenario. He is hitting us with 25%, hitting everyone else also with 25% that means everybody is at the equal disadvantage, unless he gives exemption to Mexico or some other big country or a big supplier, so everybody is at equal disadvantage.
I don't think it will hit us hard and then auto tariffs, they are part of very tightly enmeshed global value chains. Some of the your US car makers, they are assembling cars in US, but they are buying auto components from India, and I don't think it will take a hit.
He also hit the passenger cars by 25% tariffs. I say, please go ahead. 25% hit us with 100% it doesn't make any difference. Our exports to us, they are declining. They will be less than $10 million this year. So our industry will not even notice any tariff differences. Will stop exporting to them. But the real danger is, if government takes corrective steps, which means government under pressure from US, cuts its own passenger car tariffs, that will be a real calamity.
I want to share a small example in 20 seconds. Australia had 25% tariffs on its passenger cars in late 80s, and more than 10 global manufacturers, they are making cars in Australia. Then Australia thought that 45% is too high a tariff. They cut it to 5% in the next 10 years, and every single auto manufacturer disappeared from Australia. Every single imported car in Australia is imported now. No manufactures, Australia is trying to woo with subsidies that you please come and set up shop again in Australia. Nobody is coming.
We should learn from this, that auto sector is very important. It accounts for third of manufacturing GDP of India. So even though Mr. Trump hits us with high tariffs on passenger cars, we should not try to lower the tariffs beyond a point. Some of course, from 100 to we can cut by certain percentage point. But you should never drastically lower it, because we there are no gains on this.
Q: When I spoke to Mr. Bhargava, he said that even if the Tesla car came at zero duty, he says, I can compete. I don't have a problem. The problem will only be if they say that they are excused of countervailing duty, because the auto industry in India pays between 28 and, even 40% GST. So long as that countervailing duty is imposed on the imported car, if it is from America, I don't have a problem. There are some people who worry that if the same thing is applied to BYD, we will have a problem, but if it is from American cars, we won't have a problem. You don't think so?
A: Tesla, we are hearing it may be coming from Germany or Thailand and we should also know what's the Chinese content in Tesla? It's not an American car. American brand is there, like Apple. Apple is a brand. It's manufactured in China, now in India and many other countries. Similarly, Tesla, how much of the Chinese content and battery is there in Tesla? I think tremendous, we need to study that. I am Mr. Bhargava, listening to you are on the same page. He is also saying some higher level of tariffs should be there. He is using the term CVD. I am using the term some tariff without telling the details what type of tariff it is.
Q: I read your note on the FTA itself. You are saying that even after the BTA or FTA is negotiated by India, we will still be at a disadvantage because they will have more interpretation powers?
A: The issue is that in most of the US FTAs, and even decisions at the WTO, they have been taken there is Fast Track authority. The US Congress, it authorises the US President to negotiate trade deals. When the deal is done, it is presented to the Congress. Congress can say yes or no. Can't modify it. Today, that fast track authority, it expired in 2021 and US President or negotiating team, has no authority to cut tariffs, so they are seeking other countries to cut tariffs only. It's slightly murky area for me. I would say we should deal with the reciprocal tariffs and not give too much energy, not waste too much energy on this, FTA or BTA, whatever we call.
Q: Overall our exports is $45 billion for FY24 isn't it? Overall Indian exports to the US?
A: Overall Indian merchandise exports to US in calendar year 2024 were $82 billion considering India data, $92 billion considering US data so it's high. However, point to be noticed is this about 90% of industrial goods, we already allow our FTA partners, like Japan, South Korea, ASEAN, zero tariff access to India.
India industry is well attuned to zero tariff imports on 90% of industrial goods, everything, almost except passenger cars and some more. My theory is that we should offer those 90% industrial tariff lines to the US. We agree to make tariffs zero from day one. Why don’t you also reciprocate and make your tariff zero from day one? So that will take care of 90% of US exports to India. All this tariff problem will go except for the agriculture, which account for less than 5% of US exports to India.
Q: I want to come back again to the industries that may be hurt. We were told that apparel and jewellery can be hurt is that right?
A: Apparel all the developed countries, including US or European Union, very cleverly, they already charge very high tariffs on the apparel. All the labour intensive goods - apparel, shoes, handicraft, they charge high duties so that they can have some controlling levers on developing countries and LDCs, so they already have high tariffs. The tariffs are comparable, so we won't be hit and I was talking to one of my friends in apparel industry. He was saying, we will be very happy to go for zero for zero on apparel.
Q: Finally, what you are saying is that as we approach April 2, we should not worry much if there are reciprocal tariffs, and the BTA is not that big a deal for us?
A: Because BTA goes beyond tariffs, US will force us to talk on intellectual property right, dilute your patent laws, allow access to government procurement, you dilute all your digital laws. For example, RBI mandate is there that financial data should be stored in the country. They will press us on all these issues, which we should avoid right now. Reciprocal tariff, as I say, 95% of US trade that is industrial goods we can absorb happily and before April 2, now it's too late, now we should make an offer. Their team is in Delhi. We should give a list to them. We will be happy to do cut the tariff to zero, on listed products from day one and you also agree to do that.
Also Read | Trump Tariff Impact: From Tata Motors to SAMIL, shares of Indian automakers fall up to 8%
(Edited by : Unnikrishnan)
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