The Other, Just As Important Trade Meeting in Osaka

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Two months ago, I wrote about a new front in the Trump trade war. Well, we just saw the opening salvo this weekend.

India has the world’s second largest population, four times the size of the United States. It has the third largest economy based on purchasing power parity. And between $75 billion and $142 billion in trade passes between the two countries, depending on who you ask.

This makes the country a formidable enemy if we really are at economic war with India. We aren’t… just yet. But that could change, quickly.

The country just reelected Prime Minister Narendra Modi, a populist with a nationalist outlook on trade. During the campaign, he spoke out against Trump’s aluminum and steel tariffs and multinational corporate takeovers in his country (like Amazon and Walmart). At the same time, he worked to sweeten deals to attract companies like Apple, Mastercard and Visa to open up shop in India.

In short, he’s making very Trumpian moves. This is potentially the reason the two leaders get along so well. Trump has touted his friendship with Modi time and again, despite arguing over trade. In fact, their relationship sounds a lot like Trump’s “friendship” with Xi Jinping in China. And we know what that’s done – or hasn’t – for the trade war.

When I last wrote about India and Modi, I noted that the U.S. had recently backed out of the Generalized System of Preferences agreement. This was a trade agreement agreed to back in Gerald Ford’s day to promote economic growth of countries like India.

The deal limited the number of goods and services that could be placed under tariffs. Basically, this stopped Trump from going to trade war with India – until he backed out of it.

Modi, in return, campaigned on exploring retaliatory or even first-strike tariffs on U.S. goods. He had held off as the two countries discussed trade negotiations. Well, Sunday, Modi acted.

It wasn’t the largest of tariffs. We’re now getting used to numbers in the hundreds of billions when talking about these trade wars. Modi, instead, started the bidding at $241 million (based on previous discussions). No final number is yet reported. But it includes tariffs on 28 U.S. goods including apples, almonds and chemical products.

Again, this doesn’t yet amount to a full-blown trade war. Comparing the $75 – $142 billion in total trade to the amount now under tariff ($241 million), you can see we’re not ready for it to affect global markets. But it could soon.

This is just the opening shots fired. The real story here is what comes next. No doubt President Trump will want to retaliate (though his own steel and aluminum tariffs may have already done that for him). But there could be something else on the table… specifically the negotiating table.

At the end of this month, on June 28-29, the G20 will meet at a summit in Osaka, Japan. While the financial press has been talking up an on-again-off-again potential meeting with Xi Jinping, Trump has already agreed to meet with Modi and Japan’s Prim Minister Shinzo Abe. This is going to be a crucial one.

What Modi and Trump discuss will be important to both countries. You see, this $241 million in tariffed goods isn’t likely to be the end of it. Modi has proven he doesn’t back down, much like Trump himself on trade. And the way in which those goods are being used as bargaining chips is scary.

While the rest of the trade wars between the U.S. and China, the EU, Canada and Mexico have generally been in the 15% to 20% range… Modi set his tariffs at 70%. If we begin talking about billions in U.S. goods, rather than hundreds of millions, that will make a major difference.

And finally, if that wasn’t worrisome enough for anyone doing business in India, the trilateral meeting later this month has a third participant — one just as important to the health of both the U.S. and the global economies.

Abe has largely evaded trade war with Trump through constant dealing and negotiation. But there’s no doubt that the U.S. president has eyes on auto imports from the island nation.

In return, Japan could shoot back with tariffs on oil and gas – an industry the U.S. is expected to see exports boom in coming years. Japan, because of its geographical position, has to import nearly 90% of its oil and gas.

If the two walk away at the end of this meeting without agreements, that’s yet another industry at risk from this ongoing trade war.

So, while all others eye the Xi-Trump appointment, keep one eye on what happens at this Modi-Abe-Trump trilateral meeting. A lot rides on it.

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1 Comment
  1. Will Harden says

    Trump is playing the game of trade the way it is supposed to be played, with reciprocity.
    That means if a foreign power wants to place tariffs on your products, you tariff his products.
    Then the two of you have a serious talk.
    Trump is the first of our presidents who understand how this works.

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