US protectionism: impact on India
The US has recently requested dispute settlement consultations with India at the World Trade Organization to challenge India’s export subsidy programmes. A research note by Morgan Stanley says that the basis for the action is that India surpassed the defined economic benchmarks for developing countries with respect to export subsidies in 2015.
US President Donald Trump has already threatened China and India with a “reciprocal tax” or US tariff at levels prevailing in those countries. The accompanying chart, taken from the Morgan Stanley note, Protectionism Risks: What’s Next? shows the levels of import duties on the top five sectors where the US has a trade deficit. As the chart shows, developing countries like India have comparatively higher tariffs than the US. The US runs a trade deficit of $23 billion with India, but this pales into insignificance compared with its deficit with China, which is $375 billion.
Indian companies with the most exposure to the US are in the technology and pharma sectors. Says the note, “For Asia/EM equities, we feel that uncertainty on the issue of trade protectionism can drive valuation adjustment to the downside.”