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Biden reinvigorates tariff war against India

New York: The US tariff war against India has been reinvigorated by President Joe Biden threatening to increase import duties on a range of imports, from prawns and Basmati rice to furniture and jewelry, in retaliation against New Delhi imposing Digital Services Tax (DS) on tech giants.

The US Trade Representative Katherine Tai announced on June 2 the plan for the 25 per cent increase in the tariffs on 26 items from India, but said that the hikes will be on hold till December.

India imposed a two per cent tax starting in April last year on earnings in the country by foreign technology and e-commerce companies like Amazon, Facebook and Google. It was opposed by the administration of former President Donald Trump, and Biden has picked up the baton.

The Trade Representative’s Office said: “India’s DST is unreasonable or discriminatory and burdens or restricts US commerce.”

The Office estimated the increased taxes on the selected imports from India will equal the taxes India assesses on the US companies under the DST.

“Estimates indicate that the value of the DST payable by US-based company groups to India will be up to approximately $55 million per year. The level of trade covered by the action takes into five account estimates of the amount of tariffs to be collected on goods of India and the estimates of the amount of taxes assessed by India.”

The other items threatened with increased duties include bamboo, window shutters, cigarette papers, pearl, copper foil and bedroom furniture.

Inaugurating the new phase of trade wars, the Biden administration also threatened to increase tariffs on imports from five other countries — the UK, Austria, Italy, Spain and Turkey over their DST.

Explaining the reason for holding the increases in abeyance for the six countries, Tai said it was to help the international negotiations on taxation.

“The US remains committed to reaching a consensus on international tax issues through the OECD (Organisation for Economic Cooperation and Development) and G20 processes. Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs.”

The latest Biden salvo opens a new front in the trade war between the two countries that started in 2018 when Trump imposed 25 per cent duties on steel and aluminium imports from India.

In 2019, Trump withdrew the special treatment for some Indian exports, mostly low-tech items and handicrafts, under the General System of Preferences (GSP) that exempted them from import duties.

New Delhi retaliated with higher tariffs on 28 US products that included walnuts and almonds.

Biden has not so far taken steps to reinstate the GSP facility for India.

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In India-China relationship, the question of trade deficit

By Vedant Monger

Given that a large chunk of the imports from China goes into the production process, an ideal strategy would take advantage of this deficit, accelerate domestic manufacturing via assembling and find newer destinations to market output.

For more than a decade, India’s large trade deficit with China has been a growing concern. The focus of the issue, however, has largely been political. With the confrontation along the border and the pandemic leading to a campaign for self-reliance, the question of trading with a country that is also clearly a strategic adversary has gained renewed policy interest.

Final consumer goods are quite often, in public perception, (mis)understood as constituting the biggest chunk of Indian imports from China. While the absolute numbers definitely seem large, what do the facts suggest?

Based on the Broad Economic Classification categories, goods for final consumption, in 2020, accounted for 7.48% of imports from China. However, about 63% of imports were in the intermediate consumption category, which is defined as “goods and services used up in the course of production within the accounting period”. The import of capital goods comprised 16% of imports from China. As things stand, about 80% of imports from China are used in the production process.

Another finer level of analysis resorts to examining the trade in parts and components (P&C) — items such as blades, engines, electronic instruments, motors, which aggregate or supplement larger final goods such as gas turbines or mobile cranes. India’s share of imports in this category over the years has been fairly low and steady, hovering around the 10% mark.

But over the course of the last two decades, the share of P&C in imports from China rose from about 12% in 1998 to about 22% in 2020. Similarly, the share of China in India’s P&C imports rose from a paltry 5% in 2001 to about 35% in 2021. In summary, what we observe is an increased Chinese role in the Indian production process. Ironically, China itself sources a lot of inputs from the East Asian economies with which it holds deficits.

Are there any policy options to reduce this deficit? Resorting to taxing these intermediate goods heavily and/or trying to produce them domestically would be returning to the early import-substitution years (an economic disaster). Neither can one source these inputs from other countries easily — China has a proximity privilege, which, in trade empirics, is a strong determinant of bilateral trade flows. 

Unless transport costs are enormously reduced, it makes no economic sense to source these from other countries. And even if the government were to tax final consumer goods, it would not be adequate to correct the deficit.

(The Op-Ed appeared in The Hindustan Times)

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Huawei blames US for global chip shortage

Seoul: Huawei has blamed the US for a global chip shortage as it called for cooperation with South Korea, Japan and Europe to form a new semiconductor supply chain.

The move came hours after US President Joe Biden urged more spending in the chipmaking sector to resolve the chip shortage and build up a stable supply chain.

A recent shortage of semiconductors has stalled production across manufacturing industries, especially in the auto sector.

Karl Song, Huawei’s Vice President of Corporate Communications, called for the lifting of US sanctions, which the Chinese network equipment maker claimed has led to the recent chip crisis.

Currently, the Chinese telecom equipment giant is being cut off from semiconductors made with US equipment, software and designs due to US sanctions over national security concerns.

“The current global chipset shortage is due to the sanctions (Huawei) faces and its impact on the companies that we cooperate with,” Song said in a press conference.

“We hope to cooperate with advanced semiconductor countries, such as South Korea, Japan and Europe, to form a global supply chain again,” he said.

Eric Xu, Huawei’s Rotating Chairman, said that US sanctions against the company have hurt the broader semiconductor industry as they have created supply uncertainties.

The US has long alleged that Huawei’s equipment is used to spy on foreign networks, a claim repeatedly rejected by the Chinese company.

The US sanctions have hurt the Chinese tech giant, which requires semiconductors for its telecom equipment and electronic devices.

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India Latest News

How India can meet the China challenge

By Gautam Bambawale and Ajay Shah

China’s military aggression in Ladakh, which continues to date, led many of us to ask: How does India respond to and meet the China challenge? 

Our armed forces have responded magnificently in the immediate and near term. However, the India-China relationship is a long-term game, which is not merely about military affairs but also about economics, science, technology and innovation. One of the reasons for Chinese aggression toward India is the huge discrepancy in economic, military and national power, which has emerged between the two over the past decade.

In the short-run, India will have to build balancing coalitions with like-minded countries. Quad is one example. There are three groups of countries we can contemplate for such coalitions: Major democracies of the world; countries bordering China; and India’s neighbours. The United States (US), Japan, France, Sri Lanka, Bangladesh and Russia spring to mind. There are roughly 20 such countries. 

India needs to build deep partnerships with these coalitions of nation-States, going beyond treaties and agreements to forge linkages between peoples and institutions. Education, travel and tourism, cooperation among scientists and innovators need to be nurtured. Good partnerships are grounded in give-and-take, where each country reshapes its domestic policy in ways that are favourable to the other. 

India will have to rise to this challenge, and go beyond being wedded to a narrow vision of strategic autonomy.

Strategic planners in Indian firms need to rethink business plans in the light of these complexities. In some areas, where China-centric sourcing and technological dependence can elevate business risk, a selective retreat from economic engagement with China, and increased emphasis upon the global market, is optimal. 

A critical element of the journey lies in innovation policy. India needs to match and improve upon China’s achievements in fostering research institutions and intellectuals that inhabit them. 

By 2047, if we can maintain 8% GDP growth per annum, then India will be a $64-trillion-dollar economy in Purchasing Power Parity (PPP) terms. In the same period, if China grows at 5% per annum, it will be a $86-trillion economy in PPP terms. In other words, the current mismatch will reduce significantly.

The judicious use of self-reliance (atmanirbhar), grounded in self-confidence (atmavishwas), where a confident India engages with the world without insecurity, forms alliances with like-minded countries, and leverages democracy and a skilled workforce to good effect, is the path through which the China challenge can be addressed.

(The opinion piece appeared in The Hindustan Times)

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India Latest News

World is changing. India needs to get its priorities right

By Pranay Kotasthane

With Covid-19, the most common phrase in every webinar on geopolitics is the “new world order”. This phrase is used to describe periods of history with dramatic change in balance of power between nation-states. 

In its most recent avatar, the new world order has been on the anvil since 2007. China’s hostile and rapid rise, the economic aftermath of the global financial crisis, networked politics over the internet, and most recently the pandemic, together are transforming international politics.

What will this new world order look like over the next quarter century? More importantly, how can India shape this emerging order to attain peace and prosperity for all Indians?

Some foreseeable geopolitical trends include a unipolar United States (US)-dominated world, a co-operative US-China G2, a full-on US-China confrontation, or a multipolar world. Similarly, key geo-economic trends can be thought of along the lines of a global recession, a secular stagnation, a new economic boom, or a technological disruption. The confluence of the geopolitical and geoeconomic trends results in multiple world order scenarios. In each scenario, strategies to maximise India’s national interest can then be worked out.

Geopolitically, the pandemic has accelerated the confrontation between the US and China. Geo-economics-wise, it has plunged the world into a recession phase. Taken together, this could create a “race to the bottom” world order with stable geopolitical dynamics — characterised by US-China rivalry — and dynamic geoeconomics — characterised by the emergence of many new economic webs. In this order, the US will likely see countering China as an overriding national priority. 

Reorienting supply chains to reduce dependence on China will be taken more seriously. Like the global economy, technological governance may splinter into multiple interacting webs with more State oversight. Global bodies such as the UN could become far less important, and regional institutions organised around powerful nation-states could gain prominence.

In this world, where distrust with regard to China increases, India can be a part of multiple economic webs and gain from them. At the same time, its ability to shape the world order gets intricately linked with the economics and politics at home. With newer restrictions in global labour flows and thinned out capital flows, India will need to find a new engine of growth such as large-scale manufacturing. 

Returning to a higher economic growth trajectory then becomes a precondition for India’s emergence as a swing power between the US and China. Without this, India’s global role will decline, forcing it to bandwagon with other powers on less favourable terms.

Some other reforms that would serve India in multiple scenarios are implementing labor and factor market reforms, becoming an attractive foreign investment destination, championing the cause of globalisation, and executing three critical military shifts — from land to sea, from the physical to the technological, and from more manpower to more firepower.

More Indian perspectives about the changing world will enrich the global discourse. India’s current problems can’t be an excuse for insularity.

(The opinion piece appeared in The Hindustan Times)

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Trump signals banning other Chinese firms like Alibaba

New York: After issuing an executive order last week that gives China-based ByteDance an option to divest its TikTok business in the US within 90 days, US President Donald Trump hinted that other Chinese companies, including Alibaba, are also under the scanner.

When asked at a news conference if he was considering putting a ban on other China-based companies, the President said that his administration was indeed looking at “other things”.

In an executive order on August 14, Trump said, “There is credible evidence that leads me to believe that ByteDance Ltd… might take action that threatens to impair the national security of the United States.”

This came as a bit of a reprieve for ByteDance as in an executive order earlier this month, Trump prohibited the China-based company from doing business with the US firms after 45 days.

Trump cited India’s decision in June to ban several Chinese apps, including TikTok, in that order.

The order came after Microsoft revealed its intentions to buy TikTok business in the US.

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India Latest News

India, China military reach consensus to disengage

New Delhi: After 11 hours long Corps Commander level talks between India and China, government sources said that the dialogue was held in a cordial, positive and constructive atmosphere and there was a “mutual consensus to disengage”.

“Modalities for disengagement from all friction areas in Eastern Ladakh were discussed,” government sources added.

The corps commanders of two countries’ military met at Moldo to resolve the border issue and ease tension in Eastern Ladakh. This is the second such meeting after the first one on June 6 to defuse the tensions in Eastern Ladakh.

The meeting between 14 Corps commander Lieutenant General Harinder Singh and South Xinjiang Military District chief Major General Liu Lin happened on the lines of the one they held at the Chushul-Moldo border personnel meeting (BPM) point in eastern Ladakh on June 6.

Before this, Major General level dialogue took place for three consecutive days after the barbaric attack at patrolling point 14 in Galwan Valley on June 15 night where 20 Indian soldiers were killed. The three talks were to ease out the tense situation and to get released 10 Indian soldiers, including four officers, who were in Chinese captivity.

Major General Abhijit Bapat, who is the Commander of the 3 Division of the Indian Army, had raised several points with the Chinese with regard to the incident on the night intervening June 15-16.

The clash occurred at the South bank of Galwan river, which flows in an east-west direction before its confluence with Shayok river, in which 20 Indian soldiers were killed.

It is the first casualties faced by Indian Army in a clash with the Chinese People’s Liberation Army since 1975 when an Indian patrol was ambushed by Chinese troops in Arunachal Pradesh.

China’s PLA troopers “savagely attacked” Indian Army personnel, according to sources in the government with knowledge of the details of the June 15-16 night clashes between the two army soldiers.

Several Indian Army soldiers are currently “critically injured” and are undergoing treatment.

Chinese PLA troops return to Galwan Valley

New Delhi: Defying the agreed mutual consensus to disengage, Chinese People’s Liberation Army troops have returned to Patrolling Post 14 on the Line of Actual Control in Galwan Valley in eastern Ladakh where the barbaric June 15 attack, in which 20 Indian Army soldiers were killed, occurred.

The PLA has even set up tents and an observation point exactly where it was on June 15, sources said, adding that the Chinese have returned with huge reinforcements even after they have agreed to withdraw their troops and dismantle their setups.

The Chinese Army deployment is a major concern for the Indian government, but the forces in Eastern Ladakh are ready for any conflict, sources said.

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White House adviser retracts comments on China deal ‘over’

Washington: White House adviser Peter Navarro has said that the trade deal with China “continues in place” while adding that his earlier comments that the pact was “over” were taken out of context, The Financial Post reported.

US President Donald Trump also confirmed Navarro’s statement in a tweet that the deal was “fully intact.” Hopefully they will continue to live up to the terms of the agreement,” Trump said on Twitter.

Navarro earlier said the trade deal with China is “over,” and he linked the breakdown to Washington’s anger over Beijing’s not sounding the alarm earlier about the coronavirus outbreak.

“It’s over,” Navarro told Fox News in an interview when asked about the trade agreement. He said the “turning point” came when the United States learned about the spreading coronavirus only after a Chinese delegation had left Washington following the signing of the Phase 1 deal on January 15.

“It was at a time when they had already sent hundreds of thousands of people to this country to spread that virus, and it was just minutes after wheels up when that plane took off that we began to hear about this pandemic,” Navarro said.

US-China relations have reached their lowest point in years since the coronavirus pandemic that started in China caused many deaths in the United States. President Donald Trump and his administration repeatedly have accused Beijing of not being transparent about the outbreak.

Trump renewed his threat to cut ties with China, a day after his top diplomats held talks with Beijing and his trade representative said he did not consider decoupling the US and Chinese economies a viable option.

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US initiates enquiry into digital services taxes

New Delhi: The United States has initiated an investigation into digital services taxes that have been adopted or are being considered by a number of its trading partners, including India.

Accordingly, the United States Trade Representative has announced that his office is beginning the investigation.

The probe will cover 10 countries, including Austria, Brazil, EU, India and Indonesia, among others.

As per the USTR, the investigation is into digital services taxes that have been adopted or are being considered by a number of trading partners.

This provision gives the USTR broad authority to investigate and respond to a foreign country’s action which may be unfair or discriminatory, negatively affecting US commerce.

“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” said USTR Robert Lighthizer.

“We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

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