“Those who cannot remember the past are condemned to repeat it”, said philosopher George Santayana. The US has does not believe in fair trade. It always protects its farmers and manufacturers. India’s leaders should keep this in mind in their trade negotiations. It is a story I tell in my book, Reimagining India’s Economy: The Road to a More Equitable Society.
Forty years ago, when I was with Tatas, A.N. Verma, India’s Secretary for Industrial Development, invited me to meet him. Verma was Secretary Industrial Development until 1989 and later became the Principal Secretary to Prime Minister Narasimha Rao and helped to implement the bold economic liberalization reforms of 1991. Verma was a strategic thinker. He had a proposition for Tatas to lead a breakthrough for Indian manufacturers in the US market.
Prototypes of the Tata Mobile, developed in TELCO (which became Tata Motors later) were shipped to the US. US Consultants organized focus groups of potential customers in Texas and California, two states with large rural economies, where pick-up trucks were very popular, and often the only vehicles many families owned. Before the Tata Mobile was unveiled to them, they were asked about their experience with the American and Japanese pick-ups they were already using. The consensus was that American pick-ups were stronger, but the Japanese were better looking.
The interviewers then unveiled the Tata Mobile. Watching from behind the one-way glass I could see looks of delightful surprise light up faces. ‘Wow, this is like a beautiful car! But is it strong?” The interviewers explained the evolution of the Tata Mobile from a truck to assure them of its robustness too, without revealing the country of its producer. They asked how much customers would be likely to pay for it. A price line was discussed. Only then, the interviewers would reveal the product was made in India. (Remember this was in the 1980s when India, for Americans, was a country of poor farmers, beggars, and snake-charmers.) The interviewers would interrupt the stunned silence by showing pictures of TELCO’s factories, which were more modern, cleaner, and better organized than US automobile factories. Murmurs of surprise would follow. Nevertheless, when asked again how much they would pay, they reduced the initial price they had offered for the product before they knew it was made in India.
The consultants calculated the costs of producing the vehicles in India and landing them in US ports. It seemed the project might break even. The consultants had factored in the normal levels of low, US import duties on manufactured products and automobiles while computing the economics of the project. They were shocked to discover that import duties on pick-ups into the US were as high as 25%!
The 25% import tariff on pick-up trucks was introduced in 1964 by the US government as part of the “Chicken Tax”. The chicken tax was a retaliatory measure by the US against Europe, specifically West Germany and France, who had imposed high tariffs on American chicken exports, which were produced by large corporate farms, to protect their own small poultry farmers. In response, President Lyndon B. Johnson had enacted a 25% tariff on imported light trucks, brandy, and a few other products. While the tariffs on other products were later lifted, the 25% tariff on pickup trucks remains to this day to protect US automakers.
The US always put its own economic interests, and interests of US companies (which it generally sees as one and the same), above democratic values. The US claims it is the global champion of democracy. India, the world’s largest electoral democracy, has had a troubled relationship with the US. The US expects India to be always on its side against any communist or authoritarian country that is unwilling to toe the US’ line.
The US considers India immoral for remaining neutral between the Soviet Union and the West in the Cold War and was angry when India was compelled to come closer to Russia when the US supported Pakistan against India. Trump seems willing to make up with Russia now, but not with China who has grown into the second largest economy in the world and has caught up with the US in artificial intelligence. While avoiding co-option into the US camp against China, with whom India has a long-standing, and so far, unresolved border dispute, India must tread carefully not to annoy Trump.
The US and China are India’s largest trading partners, with $118 billion trade with each. Whereas India has a trade deficit of $85 billion with China from where it imports large volumes of manufactured goods, India has a surplus of $37 billion with the US which is India’s largest export market for software services. Trump says India’s import duties are too high and they must be reduced across the board, otherwise he will restrict Indian exports to the US. India has already reduced import duties on Harley Davidson motorcycles and bourbon whiskey. He wants India to reduce duties on agricultural products also to enable America’s own, highly subsidized, corporate farmers to expand their markets in India. India is resisting, and it must, because its millions of small and poor farmers need higher prices for their products to improve their standards of living.
Trump has threatened to impose a 25% across-the-board tariff on Indian exports to the US if India does not reduce tariff and non-tariff barriers for imports from the US to India. Indo-US trade negotiations have begun with a declared aim to increase India-US trade to $500 billion annually by 2030. With India threatened to reduce barriers to imports of US agriculture and manufactured products and US intellectual services, and with restrictions on expansion of exports of Indian IT services to the US, India-US trade can be increased only by a huge influx of imports from the US to India, which will reduce the growth of jobs and incomes in India, weakening the Indian economy, and creating unrest in the country.
(Published in The Tribune, June 21 2025)
https://www.tribuneindia.com/news/premium/indias-trade-tightrope-over-trumps-tariffs/