The Democrats have finally outvoted the Republicans in the US and Joe Biden has been elected the new President. And with his arrival, the global economy, in all likelihood, may undergo a significant change – at least that’s what several trade experts believe.
India too has been keenly following all the developments during and post elections – after all US is one of those few nations with whom India enjoys trade surplus. If the recent analysis by Madan Sabnavis of CARE Ratings is anything to go by, then over the last 2 decades, India has always had a trade surplus with the US. The trade surplus has jumped from US $ 5.2 billion in 2001-02 to a highly impressive US $ 17.3 billion in 2019-20
Talking about apparel industry in particular, the US remains the largest trading partner of India (both across the industries and RMG), while, for the US, India stands at 5th rank amongst top RMG importing destinations. In fact India’s RMG export to USA during the January to September period of 2020 was US $ 2.27 billion, which is 29.89 per cent fall from what it was during the same period last year – not surprising considering the existing global health scenario.
Trade war with China will keep India interested…
So, while India’s interest and keenness in US political development is justified, the question that remains is whether US under Joe Biden is good for Indian trade – in particular textile and apparel sector.
One must first accept that the trade war with China is not going to end anytime soon – the intensity might subside, but it will surely continue. Several fashion brands were displeased and irked when US President Donald Trump had commenced trade war with China.
However, if one is now going to believe that Joe Biden’s Government is going to change everything, then sadly they could be in for some shock. The democrats too believe levying tariffs is a way to put pressure on China. Both Republicans and Democrats agree on the necessity for America to take a tougher stand on trade with China, and so while Biden may not impose any new tariff on China, at least in the near future, he would also, in all probability, continue with the existing tariffs until a better solution to the problems the tariffs were structured to address becomes available.
Stephen Lamar, CEO of the American Apparel & Footwear Association (AAFA), says “Democrats might impose tariffs differently, working in conjunction with allies for instance, or use them to address different matters, such as environmental or human rights issues.” AAFA is an industry trade group representing more than 1,000 brands.
Also the fact that China is in the eye of human rights activists, over the repression of its Uighur minority, is only going to make matters worse. Democrats under Joe Biden and Vice President Kamala Harris are strict about everything that violates human rights. So trade war will continue!
China’s impeccable infrastructure will keep it an important US apparel supplier for some time, but with trade war continuing, many apparel companies will continue to move their production to other countries that could include the likes of Vietnam, Bangladesh or India. The US too will intend to focus on locally produced apparels and products in its US $ 400 billion ‘Buy American’ plan. Meanwhile, there are also reports that Biden may increase the federal minimum wage to US $ 15, but it has to be seen how soon it is going to happen.
There’s the much-talked about ‘Buy American’ plan!
The new President has pitched a US $ 400 billion ‘Buy American’ plan to direct government purchases towards domestically made items. Besides, he has also made it vocal that he is committed to uniting the economic might of democracies across the globe to counter abusive economic practices – now that’s something that critics of China have been complaining of never happening under Trump’s ‘America First’ policies.
India, one of the largest democracies in the world, definitely is a country that this new US under Biden would not like to overlook. Like ‘Buy American’, Indian Prime Minister Narendra Modi has also been advocating Atmanirbhar Bharat (self-reliant India) and ‘Vocal for Local’ lately. His ‘Make in India’ initiative has already won him quite a few admirers across the globe. This initiative also aims at bringing down the manufacturing cost of textile machines and spare parts that are as good as those from China, but slightly costlier. Though easier said than done, if these textile machinery parts get made in India, it will surely make some difference. India and the US seem to be sharing the same ideology in this aspect too and together they might still do wonders for the industry. What needs to be seen is how they are going to take things forward from here. But is everything that smooth!
Trans-Pacific Partnership (TPP) could be a thorn in India’s flesh
The Trump-disowned Trans-Pacific Partnership, better known as TPP, could be back! Many trade experts and analysts believe that TPP could be amongst the top priorities for the new President and if that’s the case, then India could be under some pressure to join the group, which seeks to put in place an ambitious regime for intellectual property rights and digital economy, amongst others.
Any move on this part (even if the US joins an amended TPP to suit its current realities) will put lot of pressure on India to join either the TPP or any other mega deal to avert its damaging impact, at a time when India had walked away from the China-controlled RCEP talks in 2019.
Substantiating on the above, Abhijit Das, Head, Centre for WTO Studies, Indian Institute of Foreign Trade (IIFT), said, “TPP is the biggest threat as agreeing to a deal will undermine our stand at the World Trade Organisation (WTO).”
Under the TPP, the US had originally proposed to offer duty-free market access in products, including apparels, to competitors like Vietnam. At the very least, it may prompt India to speed up its plan to sort out trade agreements with the US, the UK, the EU, Australia and others. However, for any trade agreement with New Delhi now, US may insist on stricter labour and environment standards, which are in synchronisation with the TPP stipulations, given the democrats’ liking for such issues. Some analysts believe America’s adversarial take on WTO is unlikely to soften substantially under Joe Biden. While TPP could prove to be that deep thorn in India’s flesh, democrats’ strong take on human rights issue could also give headache to New Delhi and hit its textile or other trade policies.
Kamala Harris’ strong take on human rights could impact trade relations…
Kamala Harris winning the elections and becoming the Vice President was no less than an event in India – a lot of which was owing to her Indian roots. Yes it does give delight to see a woman – and that too of an Indian origin – do so well in US politics, but then the story ends there. Her stand on human right issues has often invited the ire of Indian diplomats and media.
The US Vice President has openly opposed the abrogation of Article 370 from the Kashmir and Citizenship Amendment Act (CAA) and last year when she said “We have to remind the Kashmiris that they are not alone in the world. We are keeping track of the situation. There is a need to intervene if the situation demands,” it was an enough indication that India need not be among US’ favourites. Though democrats have generally had good trade relations with India, one needs to see if the new Government under Biden and Kamala Harris could carry forward the trend.
On the whole, the climate isn’t bad either! Biden’s policies of taxing corporates at a higher rate may offer an opportunity for India, which has, in fact, brought down its tax rates substantially. Rajendra Nayak, partner and national leader of international corporate tax advisory at EY India, substantiates, “If Joe Biden does indeed go ahead with higher tax rates for corporates from 21 per cent to 28 per cent, then American multinationals may find investment in India more attractive in view of the recently reduced corporate tax rate.”
Notably, India had reduced the corporate tax rate to 22 per cent for companies that gave up all exemptions and incentives in September last year. The effective rate without exemptions would be about 25.17 per cent. However, a 15 per cent rate has been offered to new companies that also include manufacturing firms. The rates have been set at a much more attractive level compared to 30 per cent rate set earlier. What needs to be seen is if the textile industry is going to benefit out of the policy.
While Biden could make possible most of his trade goals without too much struggle, some other policies might warrant some support from Congress, which, as per New York Times, may remain divided next year. And also one needs to understand that Biden may take his own time, as his first priority would be to bring the COVID-19 pandemic under control.
There’s still a month to go for the year to end. As 2021 begins, it will be interesting to see how Biden and his Government go ahead with their trade policies that could have lasting impact on trade relations between India and the US.
Till then let’s wait and watch!