Modi's problems at home overshadow Trump's latest trade threat to India

On the first day of Modi's second term, the White House terminated a special trade status for India, and the Indian government had reported that the country's economy was growing at the slowest rate in five years, and unemployment was at a 45-year peak

By Vindu Goel

Published: Jun 13, 2019

Modi's problems at home overshadow Trump's latest trade threat to India

President Donald Trump participates in a bilateral meeting with Prime Minister Narendra Modi of India at the 31st ASEAN Summit in Manila, Philippines, Nov. 13, 2017. Trump ended India’s special trade status, hoping to jolt stalled trade talks. But the prime minister is focused on India’s sluggish economy.
Image: Doug Mills/The New York Times

President Donald Trump has made India the latest target in his widening global trade war, but the country’s newly re-elected prime minister, Narendra Modi, has bigger problems to address.

On May 31 last month — the first day of Modi’s second term, and the same day the White House terminated a special trade status for India — the Indian government had reported that the country’s economy was growing at the slowest rate in five years and that unemployment was at a 45-year peak.

Modi and his new ministers responded with two acts that illustrated their top priority: reinvigorating the Indian economy.

The first act of the new Cabinet was to extend a program of cash handouts to cover 20 million more farmworkers — a sector Trump wants to open to more competition from American growers. The second was to create a pension system for small traders, a group battered by competition from India’s leading e-commerce sites, which are owned by American giants Amazon and Walmart.

The termination of the special trade status, which had eliminated tariffs on a small portion of India’s exports to the United States, had long been expected. But like Trump, Modi has embraced nationalist language and policies. Neither leader is likely to bend soon, and the Indian government made clear that it would put its own country’s interests first.

“We have significant development imperatives and concerns, and our people also aspire for better standards of living,” the Ministry of Commerce and Industry said in a statement. “This will remain the guiding factor in the government’s approach.”

The end of the preferential trade status, will not have a major economic impact in India.

India exported $83.2 billion in goods and services to the United States in 2018, but just $5.6 billion benefited from the zero-tariff designation for certain developing countries. The main industries affected will be textiles, jewelry and auto parts.

Trump administration officials view the move as delivering on their promise to rewrite trade rules for countries they believe have not sufficiently opened their markets to American producers.

“Mr. Trump is ticking all the boxes, basically: China done, Japan alerted and now India,” said Harsh V. Pant, a professor of international relations at King’s College London. “With this decision, Mr. Trump is getting into election mode.”