What in the Wild, Wild World of Global Trade is the U.S. Doing?

If you’re anything like me (I hope you’re not, for your sake) then you might also get highly confused while following the recent developments of the global trade market. For fans of the comedy TV gameshow “Who’s Line is it Anyway?”, you can understand that moment when I am watching the news and I catch myself thinking, “Welcome to the U.S. Department of Commerce’s International Trade Administration, where everything is made up and the points don’t matter!” … or something along those lines. While the recent radical fluctuations in the role of the U.S. in the global economy may seem rather humorous to me and other light-hearted individuals observing the rapidly changing landscape of global trade, there are some important things happening that deserve our attention (outside of the U.S. and China’s escalating trade feud, strikingly similar to the beef between east coast and west coast rappers in the early 1990s). One such relationship that is currently undergoing significant change is that between the U.S. and India.

In recent news, President Trump has decided to revoke India’s trade privileges as previously prescribed under the Generalized System of Preferences (GSP). Obviously, this is indicative of a changing trade relationship between India and the United States, but such action could also have significant ramifications on global trade and the global economy as well. For these reasons, it is important to understand the nature of the GSP and how it applies to India’s trade relationship with the U.S., and how removing such trade privileges would impact other major players in the global economy.

The GSP is a preferential trade system aimed to benefit the economies of least developed countries (LDCs) through tariff reductions on LDC imports to certain countries that grant GSP preferences. Currently, there are 13 countries that grant GSP preferences (including the U.S.), all of which are developed nations with the economic capability to provide such trade benefits. The

As it stands, India is the largest beneficiary nation to the U.S. under the GSP, as trade privileges have provided tariff reductions and exemptions for Indian goods exported to the US since the introduction of the GSP in 1976. In 2018, Indian goods exported to the U.S. held an estimated total value of $51.4 billion, with $6.35 billion of those goods benefiting from the GSP scheme, for an estimated savings of $260 million in tariffs for Indian exporters.

What is interesting about this U.S. decision is the indirect potential benefit to Chinese exports, as a steady rise in GSP protected exports was seen after the U.S. had placed its first initial tariffs on China. Removing these GSP privileges for Indian goods would likely lower the total amount of exported goods to the U.S., potentially benefiting a global trade giant such as China with an opportunity to capitalize on what could be a sizable vacancy of market share in the global trade market.

Certainly, this is a befuddling move for the U.S., considering the timing of the decision and the geographic significance that India holds for the U.S. as a growing trade partner in the global economy. It will certainly be interesting to see how things move forward on this front.

– Written by Jacob Stone