Trade discussions proceed undisturbed by India-Pakistan hostilities

Amidst rising anxieties last week regarding escalation of hostilities between India and Pakistan, we were also getting some positive news on the trade front. A trade deal was finalized between India and the United Kingdom (UK) on Tuesday. The United States (US) unveiled its trade deal with the UK on Thursday. China and the US started talks on bringing down the tariffs on Saturday. President Trump claimed on Tuesday that the Houthis, the Iran-backed militia based in Yemen, have agreed not to attack the commercial vessels passing through the Red Sea. 

The India-UK trade deal is welcome because it brings down the tariffs for each other in both the countries, opens up the services sector and exempts social security payments for Indians working in UK. The government said that under the agreement, 99 per cent of Indian exports will benefit from zero duty. In UK, the simple average of tariffs is 3.8 per cent for all imports, 9.2 per cent for farm goods and 2.9 per cent for non-agricultural products. So, we have to wait and see how far the Indian exporters can exploit the preferential market access. The UK government said that India’s tariff cuts amount to £400 million in the first year, going up around £900 million after 10 years, and that bilateral trade is estimated to increase by £25.5 billion, add £4.8 billion a year to its economy and boost wages by £2.2 billion every year in the long run. Details of the agreement are awaited.  The agreement can become a template for India's on-going trade negotiations with the US and the European Union. 

The UK-US trade pact is significant because it is the first deal after President Trump imposed reciprocal tariffs in the beginning of last month. Under the agreement, Imports of 100,000 cars from UK will attract 10 per cent duty instead of 27.5 per cent, steel and aluminium from UK will be allowed at zero duty and 13,000 MTS of beef from UK will be allowed into the US. It is expected that more market access will follow in subsequent rounds of negotiations. 

The US-China trade talks in Geneva, Switzerland start with some hopes of tariff cuts by both the countries but not by enough to reverse the trend of falling trade volumes. President Trump has talked of 80% tariff on Chinese goods instead of the present 145 per cent but that may not interest China much. China’s exports to US have fallen but its exports to other countries have surged. Besides tariffs, there are issues of export restrictions, market access for services and China’s industrial policy, on all of which not much progress is expected.  

Major shipping lines are yet to take seriously the claim of President Trump that the Houthis have agreed to not attack commercial vessels going through the Red Sea because there is no formal agreement. They still continue to avoid the Suez Canal route and go around Africa. As the global shipping volumes have fallen reflecting a global slowdown following the reciprocal tariffs imposed by the US, the freight rates have softened considerably. Trump’s talk of imposing 100 per cent tariff on movies not produced in the US has raised some concern among distributors and producers but they can do very little at this stage. 

Rest of the world is carryingon as usual unperturbed by the escalation of India-Pakistan hostilities. 

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