India’s trade surplus with US hits a high

7th May 2018

The odds on India drawing the ‘protectionist’ US President Donald Trump’s attention may have just shortened. New Delhi’s trade surplus with Washington has risen to a record high, and Asia’s third biggest economy now ranks ninth on the list of trade partners for the US, climbing from 13 six years ago.

Ever since the US economy’s outlook was reviewed in 2011 by ratings firm Standard and Poors, India’s trade surplus with the US has been rising. From a merchandise trade surplus of $14.5 billion in 2011 when India ranked 13th in the list of large trading partners, India’s trade surplus with the US reached a record $23 billion by 2017 end, with New Delhi climbing four notches to become the ninth largest trading partner.

India also has significant services surplus with the US, and is among the top trading partners in services.

But the US government is not too happy and is protesting with multilateral agencies. “The US has raised concerns over the import duties imposed by India in the FY19 budget, and is also challenging its export subsidies at the World Trade Organization,” said Radhika Rao, India economist at Singapore-based DBS.

“India remains on the list of countries that will face higher tariffs on its imports of steel and aluminium to the US. Material impact on India’s trade…. might be limited as the US accounts for 10% of India’s iron, steel, and aluminium exports.

Repercussions might be wider if more blanket tariffs are imposed by the US,” she said.

The US treasury has put India on a watch-list along with China and many other developed economies for amassing huge reserves and what it calls unfair currency practices, said a report released to the US Congress last week. The report titled ‘Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States’ by the US treasury office of international affairs noted that India increased its purchases of foreign exchange over the first three quarters of 2017 and warned that further dollar purchases were not required given that reserves were adequate, going by popular benchmarks.

“India’s current account is in deficit at 1.5% of GDP and the exchange rate is not deemed to be undervalued by the IMF,” said the US treasury report. “Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary.”

Source: THE ECONOMIC TIMES