Behind Trade Move Against India: Dispute on Knee Implants

Amidst America's trade battle with the world's most populated country comes a new move against the nation that occupies the No. 2 slot on that list. The US on Monday night announced that within 60 days, India will lose the preferential trade status that allowed it to export billions of dollars worth of goods to the US tariff-free. The Office of the United States Trade Representative said the change will apply to Turkey, too. The AP reports the zero-tariffs status, called the Generalized System of Preferences, is extended as a growth mechanism to poor countries. The decision to end Turkey's status was made in light of its economic growth. The same motivation didn't exactly apply to India, reports the New York Times, which says the "retaliatory" move came after a year-long effort by the Trump administration to get India to lower the tariffs it imposes on American exports, among other things. What you need to know:

• India sits No. 1 on the list in terms of the value of goods exported to the US under GSP, at $5.69 billion in 2017. Among the top categories: car parts, precious-metal jewelry, and insulated cable and wires. Fortune notes that was 11% of India's overall exports to the US that year. Turkey was in the 5th slot in 2017, at $1.66 billion.
• President Trump often returns to the same example when discussing India's "tremendous, tremendous" tariffs, reports the Times: Harley-Davidson. India imposes a 50% tariff on its motorcycles. As a workaround, Harley-Davidson now produces almost all the bikes sold in India (3,000 in 2018) abroad to sidestep the tariff.

• In its coverage, the Times of India zeroes in on other products, reporting the US had pushed India to raise the price caps on knee implants and stents but India wouldn't budge, citing its obligation to keep such products affordable for its citizens. It did propose to open market access for some farm products (another key issue), but the offer was rejected, "surprising New Delhi, which saw [Trump] as a dealmaker who would appreciate the openings in the Indian agricultural market that would give him bragging rights in the boonies and Middle American farm country."
• The reactions have been split: The AP reports that India has said it won't fight the decision. Its commerce ministry minimized the continued importance of the status, which it says resulted in just $190 million in annual tariffs savings: "It's meant for least-developed countries, and India has graduated out of that."
• But there could be bumps ahead. Reuters' take: "India played down the impact, saying it was keeping retaliatory tariffs out of its talks with the United States, but the opposition could seize on the issue to embarrass Prime Minister Narendra Modi ahead of general elections this year."
• Turkey is less pleased, with the country's trade minister arguing the move doesn't sync with the countries' stated goal of upping bilateral trade to $75 billion, reports the AP.

• CNBC reports the US' trade deficit with India is America's 9th largest, clocking in at $27.3 billion in 2017. Mid-level US and Indian officials have been engaged in talks around how to close that gap, but CNBC's sources say the Indian government wouldn't compromise, leading to the GSP move.
• The moves preceded the Wednesday release of Commerce Department figures that showed the US trade deficit hit its highest level in a decade despite Trump's push to cut the trade imbalance. The AP reports it clocked in at $621 billion, with China accounting for an all-time high of $419.2 billion. The overall gap was $59.8 billion in December alone; when adjusted for inflation, that's the highest monthly imbalance ever.
• As for what drove the December figure: US imports were up 2.1% due to Americans' increased purchase of household appliances, cell phones, and computers. Exports decreased 1.9% in light of reduced demand for planes and oil products.

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