India Loses US GSP Status – That’s What Happens To Growing Economies

President Trump has announced that India is to lose its special privileges on exports to the United States. The system is the Generalised System of Preferences and it means that certain goods from certain places pay lower import tariffs into the US. Losing that privilege could be seen as being bad news but in reality it isn’t, not particularly. In fact, dependent upon how it is lost it can be good news more generally.

The point being that the GSP is aimed at terribly poor places. In order to aid them in their growth the US offers those privileges. The European Union has a very similar program called “Anything But Arms”. And if a country outgrows being very poor then it might find those privileges for the very poor being withdrawn. But is that a bad or a good thing? Does that you no longer get welfare mean you’re worse off, or that you’re better off and no longer need welfare?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] In his latest salvo against unfair trade practices in a major Asian market, President Trump says he plans to end preferential trade treatment for India, which sought to downplay the significance of the move. In a letter sent to Congress on Monday, Trump wrote he is taking the step because “I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India.” The Office of the U.S. Trade Representative says the change will be enacted by presidential proclamation but not for60 days. [/perfectpullquote]

That’s probably not a good reason to lose the privileges. But then:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]India is the largest beneficiary of the program, with GPS (sic) imports including thousands of products and totaling $5.7 billion in 2017, a USTR spokesperson told NPR in an email.[/perfectpullquote]

Well, yes, but:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Implemented in the 1970s, the program was designed to give developing countries a leg up toward expanding their economies. Today, India boasts one of the world’s fastest-growing economies, with top exports to the U.S. including precious metals and diamonds, mineral fuels and aircraft. Mukherjee said India has outgrown its GSP status, although she did dispute Trump’s assertion that India is not providing the U.S. with reasonable market access, reports the AP. The U.S. is India’s top export destination, while India ranks 15th for the U.S. Mukherjee said the GSP benefits for India amounted to only $190 million a year. Total U.S. goods and services trade with India totals around $126 billion, according to federal data. [/perfectpullquote]

It’s trivial in that grander scheme of things. And the very fact that it is trivial is of course good news. For it shows us that India has outgrown that problem of being such a desperately poor country that it needs those trade privileges.