US trade war risk shifting to India - ING

In view of Prakash Sakpal, economist at ING, the external risks could manifest for the Indian economy if the US potentially targets India as its next trade enemy, after China.

Key Quotes

“In early March, President Trump issued a notice to end trade benefits to India under the generalised system of preferences (GSP), which allows duty-free exports to the US of about 2000 products from developing countries. This special status has been put under review on the grounds that India, supposedly the largest beneficiary of the GSP, wasn’t reciprocating with free access to its market. However, India’s commerce ministry downplayed the potential impact from this on the basis that benefits from GSP had been negligible.”

“India is also among the countries running a wide trade surplus with the US, which has brought it under scrutiny from the US Treasury for currency manipulation along with China, Japan, and Korea. But the annual surplus with the US in FY18-19 fell 20% below the Treasury’s $20 billion threshold - one of the three criterions for a country to be labelled as a currency manipulator. And India has dodged the bullets on the other two criteria -  a wide current account surplus of at least 3% of GDP, and persistent one-sided market intervention with FX purchases of at least 2% of GDP.”

“It would be interesting to see the US Treasury’s assessment in the forthcoming semi-annual manipulator report later this month, which will be based on the more stringent criterion - now less than 2% of GDP current surplus, though India still doesn't meet this, and this is likely to see more countries falling in this category.”