The United States is the most generous nation in the world. An historical example is the Foreign Assistance Act of 1948, better known as the Marshall Plan, where the U.S. gave $13 billion ($140 billion in current dollars) to rebuild Western Europe after World War II. The four-year effort led to the fastest period of growth ever in European history — industrial production increased by 35 percent and agricultural production quickly surpassed pre-war levels, saving millions from disease and starvation.
We still take pride in the amount we give to charitable causes. As a nation, in 2016, we gave more than $390 billion to charity (an increase of 4.2 percent from 2015). Yes, we are a generous and giving nation. Unfortunately, the flip-side of our largesse is that other nations frequently play us for suckers.
In the 1980s, Japan’s automotive industry, with subsidies form their government, flooded U.S. markets with small and inexpensive cars, leading to a decline and large job-losses for our own automotive industry.
In the 1990s, China gained wide-open access to U.S. consumers hungry for inexpensive goods. To supply this flood of merchandise, China invited U.S. companies to set up shop on the mainland, where forced labor and abysmally inadequate safety and environmental regulations keep production costs down. In return for Wal-Mart’s “Always Low Prices,” American workers lost millions of jobs.
In many ways, U.S. trade policy resembles an inebriated man in a bar on pay day. He doesn’t bother considering why all the girls are willing to dance with him — the fun never ends, as long as he’s buying.
India comes courting
The latest “lovely lady” of unfair trade practices just happens to be India. In 2014, Prime Minister Modi’s Administration launched Make in India, an ambitious project to attract foreign capital and investment through job creation and skill enhancement across 25 economic sectors focusing on improved quality standards while minimizing the impact on the environment.
Make in India, impressively and against tremendous odds, has been successful in creating jobs and attracting foreign multinationals. India has put out the welcome mat for foreign companies that want to “invest, build, and manufacture” in India. Two of the biggest lures to foreign investment have been India’s low labor costs and a lax, by Western standards, regulatory environment.
Conversely, Mother India is not at all welcoming to foreign companies looking to sell foreign-made goods or services. Modi’s protectionist policies are especially harsh when it comes to U.S. companies. The U.S. Government keeps a list of the world’s worst offenders of American intellectual property rights and India held the top-spot in 2017.
The report notes that, “Despite positive statements and initiatives upon which the Modi administration has embarked … India has yet to take steps to address longstanding IP issues that are affecting innovative industries. … The country continues to remain the home to several ‘Notorious Markets’ across the breadth of the country, according to the U.S. Trade Representative’s latest report.”
These “notorious markets” are found in every large Indian city and almost all small ones. They operate with impunity, seemingly offering everything including counterfeit clothing, cars, DVDs, luxury goods, mobile phones, and electronics. As bad as these markets are, however, they are just one element of the one-sided trade between the countries. A much larger issue involves patents.
The patent problem
When it comes to securing patents in India, U.S. companies are fighting a steep uphill battle against excessive and onerous reporting requirements and delays for approval on paperwork — typically these delays run for years. Three U.S. industries, in particular, have been hindered by India’s regulatory brick-wall:
Pharmaceuticals — The Modi administration has placed strict price controls on medicines and medical devices sold by U.S. companies. In effect, U.S. consumers are forced to pay higher prices for these items to subsidize the low prices in India.
Medical equipment and devices like pacemakers, stents, and surgical instruments are especially vulnerable to prohibitive import duties. U.S. companies face an immediate 24 percent price disadvantage when selling these products: a 7.5 percent basic customs duty, an even more eye-opening 12.5 percent additional duty, and for good measure another 4 percent “special” duty.
The process gets even more onerous when you realize that individual Indian states have their own taxes that apply only to imported goods.
Software — An astounding 60 percent of software floating around India is pirated. With the Indian government turning a blind eye to this blatant theft, U.S. software companies are easy targets.
IT and electronics — Under the broad claim of cybersecurity, India, as a precondition to doing business in country, requires U.S. companies to hand over valuable intellectual property. This is an open-door for stealing trade secrets and manufacturing cheap knock-offs.
Yes, India is getting the better deal when it comes to trade with the U.S., but it would be incorrect to claim that they are doing so solely by relying on theft of IP and counterfeit goods. India has a vibrant and highly-skilled IT industry that makes the country an attractive destination for sophisticated and lucrative projects.
Boeing, the world’s largest aerospace company, is opening a plant to build the U.S. military’s F/A Super Hornet fighter in India, instead of in America. This new facility will be a replica of the one in St. Louis that is supported by more than 800 vendors, employing 60,000 Americans across 44 states. All these jobs will now go to Indians.
The same thing applies to automobiles. Indian companies manufacture more than 24 million motor vehicles each year. it does help that India slaps tariffs of between 60 and 70 percent on all American-made motor vehicles. Added together, it’s easy to see why companies like General Motors and Ford are looking to ramp up their Indian production facilities.
Not unfair, just playing by the rules
India and the U.S share many interests and both benefit from a close working relationship and an expansion of trade. Ironically, goods manufactured in India are tariff-free when entering the U.S. In fact, they receive preferential treatment when shipped to the U.S. under the General System of Preferences (GSP), a 1976 agreement that still considers India a “developing country.”
U.S. President Donald Trump and some members of Congress have publicly expressed dissatisfaction with “unfair trade deals” and vow to put an end to them. As a candidate, Trump often proclaimed to approving crowds, “We are not going to let the United States be taken advantage of anymore.”
No one likes to feel they are being “taken advantage of,” and the Trump administration is correct to want to help U.S. companies and workers. But truthfully, India is doing nothing wrong, they are playing by trade rules agreed to more than 40 years ago.
The Modi administration is aggressively looking out for India’s industries and people. There is nothing inherently wrong for a government to prefer its own citizens and companies. In this instance, it’s called “good business.” If President Trump has a problem with India’s present trade-imbalance, perhaps he should revisit his opus and brush up on deal-making.