The past month has seen President Donald Trump significantly toughening up the U.S. stance on trade, enacting a 25 percent tariff on steel and 10 percent on aluminum and then $60 billion worth of tariffs against China for intellectual property theft and steel dumping. The month was capped off by an announcement that South Korea had agreed to concessions reducing exports of steel to the U.S. and an increase in U.S.-made automobile imports.
Just this past week, Congress tucked a renewal of the $21 billion a year General System of Preferences. The program “provide[s] opportunities for many of the world’s poorest countries to use trade to grow their economies…” according to the U.S. Trade Representative website.
It does so by giving participating, poor countries a certain amount of duty-free imports to the U.S. Here’s the problem.
In 2017, the top recipient was the seventh largest economy in the world, India, at $5.6 billion. The third top recipient was eight largest economy, Brazil, at $2.5 billion.
If these are two of the larger economies in the world, why do they still qualify for the General System of Preferences as being exclusive for the “world’s poorest countries”?
The answer is they really shouldn’t.
And President Trump does not have to continue it. 19 U.S.C. Section 2462(d)(1) provides that “The President may withdraw, suspend, or limit the application of the duty-free treatment accorded under this subchapter with respect to any country.”
In other words, the President has significant leverage with respect to the General System of Preferences, leading one group to call for a reevaluation of the U.S. trade relationship with India: “GSP renewal will help empower the US Trade Representative (USTR) and other US negotiators as they sit down with India’s representatives at upcoming commercial discussions,” the Alliance for Fair Trade with India said.
The same could be said for Brazil.
Indian Prime Minister Narendra Modi delivered the opening speech the World Economic Summit at Davos this year, blasting Trump as he warned, “forces of protectionism are raising their heads.” It was the height of hypocrisy.
An Americans for Limited Government Foundation report by Assistant Professor of Finance at the College of Business Administration, University of Texas at El Paso Alex Holcomb recently blasted the “Make in India” program as doing nothing alleviate India’s trade barriers: “India [is] imposing price controls, demanding technological transfers, and instituting other manifestations of non-tariff barriers once investments are undertaken. The campaign therefore often amounts to little more than regulatory entrapment.”
In addition, India charges 13.4 percent tariffs on a most favored nation basis, and Brazil charges 13.6 percent. The U.S. charges 3.7 percent in comparison. That’s not reciprocity.
Which is precisely the type of global trade imbalance that President Trump promised to address when he won the election in 2016.
Instead of trade preferences, Trump should seek to establish bilateral trade relations with both of these economies. Only then can the goal of fair and reciprocal trade be achieved. Right now, the U.S. is giving India and Brazil, two of the larger economies in the world, duty-free treatment and the U.S. is getting nothing in return. President Trump should change that.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.
