Issue 26- On Dairy Imports, Retaliatory Tariffs, and Gigantic IPOs.

Issue 26- On Dairy Imports, Retaliatory Tariffs, and Gigantic IPOs.

In today's Finshots brief, we will discuss

  • Why dairy imports are impeding US- India trade negotiations
  • The aircraft battle between the US and Europe
  • And Ant Group's massive IPO

Policy

The dairy barrier

India’s dairy industry is vital to our economy. It supports the livelihood of hundreds of millions of small farmers, landless laborers, and the societies responsible for processing and selling its products. All in all, about 67% of India’s animal farming income comes from dairy.

And over the years, India has pretty much become self-sufficient in dairy products. Meaning, we don’t import a lot from outside and our producers like it that way. Unfortunately, this very fact has become a major sticking point for international trade.

You see, India has been trying to establish bilateral trade deals with the economies of Australia, the US, and the UK for a good while now. The problem is, these nations want us to open up our huge markets to their dairy producers, something which our government has been refusing to do. Now, this resistance is threatening an agreement that has been in the works since 2018 - The elusive India-US trade deal. But before we delve into that, we need some background.

Back in 2017, US President Donald Trump was very upset with India. He claimed that India was exporting a lot to the US, without importing a reciprocal amount. He called for this growing trade deficit to be bridged, and India dutifully set about the task. But it wasn’t enough.

Sick of India’s protectionist policies and excessive duties on goods like dairy and motorcycles, they decided to kick us out from their Generalized System of Preferences (GSP) program in 2019. Think of GSP as an initiative that lets developing countries like India ship goods to the US at reduced tariff rates, allowing them to be competitively priced in international markets. And for India, this program was a blessing. It enabled us to gain tariff benefits of around $6 billion out of the $46 billion worth of goods we exported to the US. But since the US decreed that we weren’t providing them with equitable and reasonable access to our markets in return, these benefits were withheld.

And our government has been trying to get them back ever since. In September, Commerce and Industry minister Piyush Goyal said that we would be signing an initial limited agreement with the US either before or soon after the Presidential elections in November. Well, the time is nigh, but the deal seems to be stuck.

And the issue is dairy. The US wants India to purchase dairy and agricultural products worth $6 billion from them under the agreement. India has offered to ramp up on energy trade with the superpower instead, but it looks like that’s a no-go.

Well, the Indian industry isn’t relenting either. As R.S. Sodhi, managing director of the Gujarat Cooperative Milk Marketing Federation, said, “We will never allow it.” According to him, India will become a milk surplus nation in the next decade, and as such, the agreement isn’t worth the millions of local livelihoods that will be disrupted. So it doesn’t look like we’ll have a deal any time soon.


Business

Tit for Tat

In 1990, European plane-maker Airbus had less than 25% of the market share of American plane-maker Boeing. But within a decade, Airbus developed many different kinds of aircraft, allowing them to gain equal prominence in the global aviation market. And the United States pegged this massive growth to below-market loans that several European countries had provided to Airbus.

They argued that these loans were a gross violation of trade agreements. And in 2004, took the matter to the World Trade Organization (WTO). Last year, the WTO found Europe guilty and granted the US permission to impose tariffs of up to $7.5 billion on European exports annually. But that’s not where the story ends.

You see, in 2005, a year after the US’s complaint, Europe decided to retaliate. They contended that the US had provided similar illegal subsidies to Boeing. And after 15 years, the WTO has found that to be true as well. They have now authorized the European Union to impose tariffs on US exports to the tune of $4 billion annually. The EU hasn’t yet finalized the list of items they want to target yet, but the US has already pledged to “strike much harder”, if they choose to go ahead with the tariffs. Oh well!!!


Markets

Ant's massive IPO

Fintech giant Ant Group is coming out with an Initial Public Offering and it’s going to be the biggest, baddest thing the stock market has ever seen. The IPO aims to raise around $34.4 billion, valuing the company at over $310 billion! This will surpass even Saudi Aramco’s offering last year.

Instead of selling their shares on the US stock exchanges, Ant group is going for a dual listing on the Hong Kong Stock Exchange and Shanghai's Star Market. And China, who has been trying to lure its huge tech companies away from overseas markets, is overjoyed. As Xiaomeng Lu, senior geotechnology analyst at Eurasia Group said, "The Chinese government is more than happy to host a national champion on one of its major capital markets domestically at a time when many Chinese companies are facing greater political headwinds overseas."

Ant’s listing will massively boost the visibility and value of China’s Shanghai Stock Exchange (which houses the Star Board), pushing its market capitalization near that of the Tokyo Stock Exchange!

As for the Ant group, they will get to avoid the political headwinds Xiaomeng Lu was talking about. The United States’ recent unfriendly moves against Chinese companies like TikTok and WeChat has given Chinese investors good cause for concern. And as such, they may feel safer listing at home.


What else happened?

Pollution Check

India has one of the worst air pollution problems in the world. But now, the government has informed the nation's top court that they will soon frame a new law to manage the issue. Know more.

Surprise Comeback

In September, American motorcycle giant Harley Davidson decided to exit India. But now, the company is tying up with Hero MotoCorp, though which Hero will sell and service Harley motorcycles in the country. Learn more.

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-Written by Vedika Agarwal and Akshay Tater