What Happened

The White House announced May 31 that it had revoked India's tariff benefits under the Generalized System of Preferences (GSP). Washington cited New Delhi's failure to provide "equitable and reasonable access" to its trade markets, while implying that the program — which was put in place in 1975 to boost U.S. trade with developing countries — was outdated and no longer useful. India had been the largest beneficiary of the GSP, with $6.3 billion of its goods eligible for preferential duties under the program in 2018. New Delhi has since downplayed the U.S. decision, saying that such economic concerns were simply a part of any international relationship that "get resolved mutually from time to time." 

Why It Matters

Over the past year, the United States has repeatedly called for India to lower its tariff barriers to enhance access for U.S. commerce, while reducing New Delhi's $24 billion trade surplus. But India has so far resisted doing so, for fear that it would result in lost jobs and further slow its economy. 

Revoking India's GSP benefits could lay the groundwork for India emerging as the next target in U.S. President Donald Trump's growing list of global trade wars. Should the White House follow up with a 301 investigation (which is the legal tool it has used to hike tariffs against Chinese exports), there's a chance Washington could start imposing tariffs against a wider swath of Indian exports to force New Delhi to yield to its trade demands. 

For India's part, the United States remains its largest export market and has thus sought to avoid an escalation on its U.S. trade disagreements by repeatedly delaying imposing $235 million worth of retaliatory tariffs. The latest delay on those tariffs expires, however, on June 16, after which New Delhi will be forced to make a decision: either hit Washington back, or absorb the blow in hopes the issue will die down.

Background

In April 2018, the Office of the United States Trade Representative initiated a review of India's GSP benefits upon receiving complaints from the U.S. medical device and dairy sectors that Indian trade barriers were impeding greater exports. Washington and New Delhi held negotiations to reach a mutually beneficial trade package, but the talks ultimately failed to break the impasse. Roughly a year later, in March 2019, Trump notified Congress of his intent to terminate India's GSP benefits, triggering a 60-day review period. Though that review period expired earlier in May, Washington waited until India's general elections were over before announcing its GSP decision on May 31 — which was also the first day of Prime Minister Narendra Modi's second term after his landslide electoral victory.