The case of alcohol and agriculture in the Indian context

To understand reciprocal tariffs one must travel across America, which is a joy. In the American wilderness, which still retains the American way of life, one can reminisce about the struggles of American migrants, how they braved and conquered nature all those centuries ago.

Step into a modern American home, and you will find that the guns are real. They have a stockpile of them. Again, this is a reflection of the American spirit, the frontier needed brave men and women to defend themselves against bandits and warring native tribes.

Why they stockpile them in the present is anybody’s guess. Who is their enemy?

What is not unusual, anymore, is that everything from the clothes they wear to the food they eat to the daily wares to run their homes originate from China, South East Asia, India, Mexico and other parts of the world.

U.S.A is truly a modern day Empire which sources the best from every part of the world for its citizens to enjoy and at the cheapest cost.

Global sourcing, thanks to lower tariffs, made prices of products so cheap that shopping and discounts are a year round affair in the U.S.A.

All American brands have outsourced manufacturing to the rest of the world. One only has to enter a Walmart or a Target or a Giant Eagle, to find a store where Made-in-America products dominate aisles.

America has always focused on IP, which has also been the reason why it has focused on attracting world class talent.

In this context one has to understand why the current government wants to renegotiate tariffs. The question to ask is whether they are justified in nitpicking the deals that they had cut earlier, which benefited the American citizens.

Tariffs are not new in a trade war.

They are a tax that is used by governments to rein in imports when domestic products are losing their edge to foreign products. However it is not as simple as this.

Relationships between nations are as complex as people in relationships. Tariffs are barriers that remind us of the realities beyond the niceties and the courtesies.

The job of every State is in protecting domestic businesses, which in turn also shape international trade relations.

In recent times the Trump administration has stumped everyone with reciprocal tariffs, and the literature is already out there about why this has happened.

But, the way the administration has nitpicked India has to be examined on two items, which are alcohol and food. Before coming to India, what is Trump’s pet peeve when it comes to behaving in such a manner?

Trump talks

Trump has quoted openly that the North American Free Trade Agreement was a very bad deal in the history of the U.S.A. because 90,000 factories have shut down since 1994.

Trump believes that many of these trade deals benefit only Wall Street and not Main Street – the consumers and local businesses – which is partially true. But, that’s not the entire picture.

What happened, in the mid eighties and nineties, is that the global move to shift American factories to other nations, especially China, increased corporate profits and market capitalization, which eventually led to Wall Street’s leaders making a lot of money and of course it benefitted Main Street in the form of cheap goods and services.

Americans could now enjoy the things that they could never have.

For example a cycle (bike) that cost $400 in the eighties was now available for less than $100, the quality could be different, but the product was now affordable to many.

While this made a lot of sense for the American middle classes, the spending did not stop there, as job roles and technology changed. This is where the problem began.

Americans began to borrow more and spend more, which eventually benefitted Wall Street and the writing on the wall for everyone to see – Main Street would eventually suffer with technology progressing manifold.

Physical labour, manufacturing jobs, became redundant with automation.

In the present one can see how American wealth has shifted because of IP led jobs. Most of the wealth remains with Texas, East and West Coast States, where tech led businesses and services economy have blossomed.

The entire old world industrial and agriculture economy States, from Illinois to Ohio to Kansas to Missouri to Montana, began to see a dip in sentiment about their job security and the future of their small businesses.

Trump has promised the pursuit of happiness for every citizen, which is enshrined in the U.S. constitution. By supporting local businesses the Republican manifesto wants to make noise to overhaul global trade relationships and bring back factories to the U.S.A.

Hence the tariff wars are justified, but, Wall Street will never be happy because it cuts into their profits and here is what is going to happen with India.

The alcohol tariffs

Get used to “reciprocal tariffs,” which means that if India charges “X” times on an American product, the U.S.A will match that tariff on Indian goods. It is as simple as that.

The question is not about the fairness of the tariff, it is about why high tariffs were imposed as perceived by the American administration.

India has a trade surplus with the U.S.A. In 2023 the trade surplus stood at $30 billion. India imports around $47 billion dollars worth of product and exports around $77 billion worth. According to the latest media reports the trade surplus has swelled, it currently stands at $40 billion.

Do we renegotiate the tariffs? Yes, in all matters both nations must talk it over. But, the products highlighted by the Trump administration are inconsequential in the larger scheme of trade with their country.

According to recent statements made by the White House Press Secretary, Karoline Leavitt, India imposed higher tariffs on American alcohol and agricultural products.

A point to note is that India imports less than $300 million worth of U.S. alcohol. The alcohol optics need to be studied in detail and one only has to speculate the motive of asking India to reduce tariffs on American alcohol.

Maybe the American administration believes that American “corn” based bourbon stands a chance in India, but they are up against the mighty “mollasses” based Indian Made Foreign Liquor, which sells 400 million cases per year and includes whisky and rum as part of the offering. Even if India makes tariffs on American alcohol almost zero, it would be an uphill task to break IMFL consumption here.

Maybe the tariff narrative is intended to enforce or start a conversation with the Indian government to let American alcohol companies create a foothold in India.

Even if such companies want a foothold and do what Pepsi and Coca Cola did to this country, where they acquired local brands, the Indian government would still insist that these companies bottle in India and invest in manufacturing capabilities, which will again hurt the U.S.A’s narrative of creating jobs.

Now to a lot more serious subject, which is agriculture.

Let’s talk billions: the food business

Tariffs on agricultural products is the second most important topic under contention.

India imports more than $1.6 billion of American agricultural products and in order to protect Indian farmers India imposes 150 percent of tariff on American agri-imports such as ethanol, tobacco, nuts and apples.

Almonds and pistachios constitute more than half of the agricultural import from the U.S.A.

Now, India is going to face a barrage of questions from the Americans – one of them would be relax government procurement of agriculture produces.

They will also ask the Indian government to reduce agricultural subsidies, and increase the use of genetically modified seeds, which India is vehemently opposed to.

The Americans have large mechanized farms and want the Indian market because it has young consumers.

Remember that the American government subsidizes their agriculture and if India relaxes its tariffs then the market will be flooded with cheaper and affordable American agriculture products.

If China has come to dominate Indian homes by filling them with unnecessary wares, the U.S.A. dominating Indian food baskets would destroy India’s ethos of being free of foreign influences on domestic soil.

India on the other hand exports $5 billion worth of food to the U.S.A and the U.S.A may say that it’s because of lower tariffs that India has been able to export more.

But, we readers miss the point, while American tariffs are low there are several non-tariff barriers mostly resulting in the lack of market access for Indian agricultural products. There are sanitary and phytosanitary regulations that impact the entrance of produce shipped by Indian farmers and traders into the U.S.A.

India has always stuck to the World Trade Organisation’s norms which states that a country can protect its sensitive sectors and in India’s case the jury is out there when it comes to tariffs on farm imports.

India is only protecting its core sector – agriculture – rural labour and farmers are also the largest voting constituent. India will continue to protect them.

These reciprocal tariffs will eventually hurt the consumer in America who will pay more for rice, sugar, spices and buffalo meat.

India needs American mechanization in farming, and America needs Indian spices. But, to import a lot more agricultural produce from America can be a political disaster for any Indian government.

Lowering tariffs to a new rate can be offset by convincing the Americans to let us export a lot more produce from Indian farms to their plate. Maybe it’s best to diplomacy to take this conversation to the next course.

In conclusion

There are 100s of items that both nations import or export. Reciprocal tariffs are only going to be reactionary and hurt everyone in the short run.

Nevertheless, it’s a tool that powerful nations use to get people on the negotiating table.

Reciprocal tariffs are only going to make the pouty U.S. administration happy and is going to turn out to be a political shenanigan. It’s only going to hurt the American people in the long run.

Maybe in the short run jobs will be created in the U.S.A. and yet the pricing of goods and services will go up when you take the cost of living into consideration as reciprocal tariffs take effect.

Henceforth, Americans will have to save more and spend less, the most pertinent question to ask will – would they do it? But then again, Wall Street will not be happy and neither will Main Street because goods are now expensive and profits are going to fall.

Think about it, when an American buys a guitar that is made in China, he pays only $150, or less. Now when an American buys an American made guitar, the American citizen pays $600 – of course the guitar would be of very good craftsmanship. Nonetheless, the sounds you make on your guitar come from the head and not the guitar itself. Maybe the answer lies here – America or Americans have to introspect a lot more if they really want to play this reciprocal tariff game.

The Trump administration must be ready to answer many questions in a changing world.

The problem is more systemic and the whole American ideal needs a rethink if the pursuit of happiness is to be a real deal. Not just Trump talk