Commentary 3

Title of the article:

https://www.agriculture.com/india-reduces
Source of the article:
-import-tariffs-on-u-s-turkey-and-duck-me

at-7967871

Date the article was published:

Date the commentary was written:

Word count of the commentary:

Unit 3: Macroeconomics
Unit of the syllabus to which the article

relates:

Interdependence
Key Concept used:
Article

India reduces import tariffs on U.S. turkey and duck meat

In the second breakthrough in three months, India said on the sidelines of the G20

summit meeting that it would reduce import duties on frozen U.S. turkey and duck meat.

Lower tariffs will give U.S. exports a chance to win sales in the rapidly growing market,

said U.S. poultry groups, while calling for India to open its market further.

In the second breakthrough in three months, India said on the sidelines of the G20

summit meeting that it would reduce import duties on frozen U.S. turkey and duck meat.

Lower tariffs will give U.S. exports a chance to win sales in the rapidly growing market,

said U.S. poultry groups, while calling for India to open its market further.

U.S. trade representative Katherine Tai said the announcement resolved the last

outstanding dispute between the nations, “an important milestone” in trade relations.
Agriculture Secretary Tom Vilsack said “important progress” had been recorded but

“significant tariff and non-tariff barriers to American agricultural products accessing the

Indian market remain.”

India has agreed to reduce tariffs on U.S. products including frozen turkey, frozen duck,

and fresh, frozen, dried, and processed blueberries and cranberries, said Tai’s office on

Friday. In late June, as part of a visit by Prime Minister Narendra Modi to Washington,

the nations announced the removal of retaliatory tariffs on U.S. apples, chickpeas,

lentils, almonds, and walnuts; that development took effect last week.

At present, India is a small market for U.S. food and ag exports. Sales were forecast at

$1.6 billion in the fiscal year that opens on Oct. 1, or slightly less than 1% of farm

exports. The United States was forecast to import twice as much of Indian food and ag

products — $3.2 billion.

Under the latest agreement, India will remove retaliatory tariffs and reduce the basic

tariff to 5% on frozen whole turkeys and frozen turkey parts from the current 30%, said

the National Turkey Federation. “This new agreement will now allow U.S. turkey

growers to compete in the rapidly expanding market,” it said.

“We very much appreciate our government’s ongoing efforts to increase access for U.S.

poultry and egg products in India,” said Greg Tyler, chief executive of USA Poultry and

Egg Export Council. “We hope that in the future we are able to gain better access for

chicken and to expand access for duck as well, which can help to further address the

protein needs of Indian consumers.”

Indian TV news channel ABP Live said, “While all trade disputes between both nations

now stand resolved, India did not stand to gain much.” The 2019 Trump-era cancellation

of $6 billion worth of trade benefits to Indian exporters through the U.S. Generalize

System of Preferences was not restored, it said. Poultry trade has been an issue

between the nations since 2007, with India saying it needed to protect its producers

from low-priced U.S.-grown chicken legs. The United States took the issue to the WTO

and won.

The United States was among six nations to accuse India in April of violating world

trade rules by giving exorbitant subsidies to its wheat and rice growers. The lavish aid

was equal to 81% of value of the wheat crop and 94% of the value of the rice crop in

2020/21, although India had agreed to limits its market price supports to 10%, said the

counter-notification filed by Australia, Canada, Paraguay, Thailand, Ukraine, and the

United States.
Introduction

As India reduced import tariffs on U.S. turkey and duck meat from 30% to 5%, trade

relations between the U.S. and India improved. This demonstrates the key concept of

interdependence, the idea that economic decision makers interact with and depend on

each other.

Explanation of Problem

Tariffs are taxes on imported goods or services, and are a form of trade restriction.

India’s original tariff on imported turkey and duck meat from the US served 2 purposes:

to protect their domestic poultry industry and to raise revenue for their government.

Moreover, India lowering tariffs on U.S. turkey and duck meat improved trade relations

between India and America, “resolving the last outstanding dispute between the

nations”. Maintaining good trade relations are important as they make

interdependence between countries possible. The diagram below illustrates the effects

of India lowering tariffs on imported turkey and duck meat from the US.
Explanation of the Policy and Diagram

The horizontal distance between Pw (world price) + 30% tariff and Pw (world price) +

5% tariff represents the value of the tariff. As the tariff placed on imported duck and

turkey from the US is lowered from 30% to 5%, the price of imported duck and turkey

meat exported from the US to India falls from Pw + 30% tariff to Pw + 5%. The world

supply curve would shift downwards from world supply + 30% tariff to world supply + 5%

tariff. At the new price Pw + 5%, quantity Q1 of duck and turkey meat is produced, Q4 is

demanded, and Q4-Q1 amount of duck and turkey from the US is imported into India.

As a result, the quantity demanded for duck and turkey meat exported by the US

increases from Q3 to Q4, and the domestic quantity supplied for duck and turkey meat

in India falls from Q2 to Q1. Thus, the quantity of duck and turkey meat exported from
the US and imported to India would increase from Q2-Q3 to Q1-Q4.

Consumers

With the increase in imported turkey and duck meat from the US, domestic consumers

from India would gain greater access to imported poultry products, allowing them to

choose from a larger varray of turkey and duck meat products. As the article puts,

this“help[s] to further address the protein needs of Indian consumers.” This

demonstrates interdependence as poultry products from the US interact with and

benefit the health of domestic Indian consumers. Moreover, by trading with each other,

India can import a larger variety of turkey and duck meat products from the US which

are possibly of higher quality than the ones they can produce themselves.

Domestic consumers will also benefit from lower prices as a result of a lower tariff. As

tariffs on imported duck and turkey meat from the US falls from 30% to 5%, domestic

Indian consumers can now pay lower prices for imported turkey and duck meat from the

US.

Producers

As a result of greater competition from US turkey and duck meat producers, domestic

Indian turkey and duck meat producers are forced to become more efficient, meaning to

produce at the lowest cost possible, to compete with lower-priced imported US turkey

and duck products. This is especially relevant as “low-priced U.S. grown chicken legs''

has proven the efficiency of US poultry producers. Hence, if domestic poultry producers

do not become more efficient, they will have to sell their output at higher prices to cover
their higher costs and domestic consumers will prefer lower-priced imported turkey and

duck meat products from the US. As a result, domestic poultry producers may suffer

from lower sales and go out of business.

With lower tariffs on their turkey and duck meat exports, US producers now have

greater access to India’s “rapidly expanding market”. This benefits US poultry producers

with greater sales and an expansion on the size of their market, thus displaying

interdependence as US poultry producers are dependent on India’s poultry market for

greater sales and growth. Although India currently is only a “small market for U.S. food

and ag exports”, with the reduction of tariffs in America’s food products - turkey and

duck meat, the US is “forecast to import twice as much of Indian food and ag products

— $3.2 billion, thus achieving expansion in sales.

Government

Tariffs are a source of government revenue, so a reduction in tariff would result in a loss

of tariff revenue for the Indian government. This might compromise areas in India’s

economy which require government spending such as infrastructure, health care, etc.

Overall Judgment

I think that India’s decision to lower tariffs on turkey and duck products imported from

the US is ultimately an overall beneficial decision. Not only do domestic Indian

consumers benefit from lower prices, greater choices, but domestic producers will

benefit from greater efficiency as well. US poultry producers will also gain from access
to larger markets and greater sales. This allows India’s market to interact with

America’s, improving trade relations and allowing both markets to become

interdependent.

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