INDIA & USA TERMS OF TRADE

INTRODUCTION

 WHAT IS TRADE?
Trade is the exchange of goods and services between different entities, such as individuals,
businesses, and countries. Trade has been a fundamental part of human civilization since
ancient times, and it plays a crucial role in the global economy today.
Trade can occur within a country, between different countries, or between different regions
within a country. The terms of trade refer to the relative prices of exports and imports
between trading partners. Trade can be conducted through various means, including direct
exchange, barter, or through the use of a common medium of exchange, such as money.
In modern times, trade is often conducted through formal agreements between countries,
known as trade agreements or trade deals. Trade agreements typically seek to reduce barriers
to trade between countries, such as tariffs or quotas on imported goods, in order to promote
the free flow of goods and services between trading partners. They may also include
provisions related to intellectual property, labor rights, and environmental standards.

 WHAT DOES TERMS OF TRADE REFER TO?

Terms of trade is an economic concept that refers to the ratio between the prices of a
country's exports and imports. It is a critical measure that helps to gauge the exchange of
goods and services between countries. The terms of trade signify how much of one country's
goods and services can be obtained in exchange for a certain amount of another country's
goods and services.
The terms of trade are affected by various factors such as changes in global demand for
exports, price fluctuations of imported goods, and alterations in exchange rates. When a
country's terms of trade improve, it means that the prices of its exports have risen relative to
the prices of its imports. This development can have a positive impact on the country's
economic growth, leading to increased exports, production, and employment.
On the other hand, when a country's terms of trade deteriorate, it means that the prices of its
exports have reduced relative to the prices of its imports. This condition can have a negative
impact on the country's economic growth, leading to decreased exports, production, and
employment levels. Overall, understanding terms of trade is crucial for countries and
policymakers as it helps them to monitor and regulate their economic relationships with other
countries. By carefully tracking the terms of trade, countries can make informed decisions to
improve their trade conditions, foster economic growth, and enhance their global
competitiveness.
 OBJECTIVES

The following are the key objectives of analyzing terms of trade:

 To evaluate a country's economic performance: Terms of trade analysis helps in
assessing the economic performance of a country by determining the value of its
exports compared to the cost of its imports.

 To identify changes in trade patterns: A terms of trade analysis can help identify
changes in a country's trade patterns by examining changes in the prices of exports
and imports.

 To identify potential economic opportunities: Analysis of terms of trade can help

identify potential economic opportunities for a country by examining the trends in its
trade patterns and identifying areas where it may have a comparative advantage.

 To assess the impact of trade policies: Terms of trade analysis can help assess the
impact of trade policies on a country's economic performance by examining changes
in the prices of exports and imports.

 To identify factors affecting trade: Analysis of terms of trade can help identify the
factors that affect a country's trade, including changes in global demand and supply,
currency fluctuations, and trade policies.

 To determine the balance of trade: Terms of trade analysis helps in determining a

country's balance of trade, which is the difference between the value of its exports and
the cost of its imports.

 To examine the terms of trade of different sectors: Terms of trade analysis can be
used to examine the terms of trade of different sectors within a country, such as
agriculture, manufacturing, and services.

 To assess the impact of exchange rate fluctuations: Terms of trade analysis can
help assess the impact of exchange rate fluctuations on a country's trade, by
examining changes in the prices of exports and imports.

 To identify opportunities for trade diversification: Analysis of terms of trade can

help identify opportunities for trade diversification by examining the trends in a
country's trade patterns and identifying potential new markets.
 IMPORTANCE

Here are important points to understand the significance of terms of trade:

 A country with a higher term of trade can earn more income from its exports and pay
less for its imports, leading to an improvement in its balance of payments.

 An improvement in the balance of payments can increase a country's foreign

exchange reserves, which can be used to finance imports and pay off debts.

 Higher terms of trade can also improve a country's economic growth rate by
increasing the income and purchasing power of its citizens.

 Low terms of trade can lead to inflationary pressure, as the cost of imports increases,
which can reduce the standard of living of the people.

 If the terms of trade deteriorate, a country may need to borrow more from foreign
lenders to finance its imports, which can lead to an increase in the country's debt
burden.

 The terms of trade can also affect a country's political and social stability, as a decline
in income can lead to protests and political unrest.

 A country's terms of trade can also affect its trade policy, as countries with higher
terms of trade may be more willing to engage in free trade agreements.

 Terms of trade can affect the relative competitiveness of different industries within a
country, as industries that produce goods with a higher export price will be more
profitable than those with lower prices.

 Terms of trade can affect a country's ability to invest in education, healthcare, and
infrastructure, as a decline in income can reduce the government's ability to finance
these investments.
 FACTORS AFFECTING TERMS OF TRADE

The terms of trade between two countries are influenced by several factors, including:

 Global demand and supply: The demand and supply of goods and services in the
global market have a significant impact on the terms of trade. If the demand for a
country's exports increases relative to the supply, the country's terms of trade
improve, and vice versa.

 Exchange rates: The exchange rate between two currencies can impact the terms of
trade. If a country's currency appreciates, its exports become more expensive, while
imports become cheaper, which can negatively impact the terms of trade. On the other
hand, if a country's currency depreciates, its exports become cheaper, while imports
become more expensive, which can positively impact the terms of trade.

 Tariffs and trade barriers: Tariffs and other trade barriers can impact the terms of
trade by making it more expensive for a country to export goods and services. When a
country imposes tariffs on imports, it can negatively impact the terms of trade by
making it more expensive for the country to import necessary goods and services.

 Technological advancements: Technological advancements can have a positive

impact on the terms of trade by reducing production costs, which can improve a
country's competitiveness in the global market.

 Political stability: Political instability and uncertainty can negatively impact the
terms of trade by reducing investor confidence and leading to fluctuations in the value
of a country's currency.

 Natural disasters: Natural disasters can have a significant impact on a country's

terms of trade by disrupting supply chains, reducing production, and increasing the
cost of inputs.

The terms of trade between two countries are influenced by a range of factors, including
global demand and supply, exchange rates, tariffs and trade barriers, technological
advancements, political stability, and natural disasters. These factors can have a significant
impact on a country's export and import competitiveness, and understanding them is crucial
for policymakers to make informed decisions to improve their country's terms of trade.
 TERMS OF TRADE – INDIA & USA

India and the United States have a long history of trade relations, which have grown
significantly in recent years. The two countries have been engaged in trade since the 18th
century, with the United States exporting agricultural products to India, and India exporting
textiles and spices to the United States. Over the years, the nature of trade between the two
countries has evolved, and today, the United States is one of India's largest trading partners.
The terms of trade between India and the United States refer to the ratio of prices at which
India exports its goods and services to the United States compared to the prices at which it
imports goods and services from the United States. The terms of trade have a significant
impact on the economic growth and well-being of both countries. A favourable terms of trade
indicates that a country is earning more from exports than it is spending on imports, while an
unfavourable terms of trade means that a country is spending more on imports than it is
earning from exports.
The terms of trade between India and the United States are significant for both economies.
While India is a major exporter of pharmaceuticals, textiles, and other goods, it is also a
significant importer of crude oil, natural gas, and other commodities from the United States.
The unfavourable terms of trade for India underscore the need for diversification of its export
basket and promotion of domestic manufacturing. The United States can continue to support
India's efforts to improve its terms of trade by providing access to its markets, technology,
and expertise. A mutually beneficial trade relationship between India and the United States
can contribute to the economic growth and development of both countries.

TRADE RELATIONS
India and the United States are two major economies that engage in significant trade with
each other. The terms of trade between the two countries refer to the ratio of prices at which
India exports its goods and services to the United States compared to the prices at which it
imports goods and services from the United States. The terms of trade have a significant
impact on the economic growth and well-being of both countries.
India's major exports to the United States include pharmaceuticals, textiles, gems and
jewellery, machinery, and organic chemicals. On the other hand, the United States is a
significant supplier of crude oil and natural gas to India, and it also exports aircraft,
machinery, and precious stones to India.
Despite the growth in bilateral trade, the terms of trade between India and the United States
have been generally unfavourable for India due to its reliance on imports of crude oil, natural
gas, and other commodities. India has been taking steps to improve its terms of trade with the
United States by diversifying its export basket, promoting domestic manufacturing, and
reducing its reliance on imports.
Understanding the terms of trade between India and the United States is essential to identify
opportunities for growth and development in both economies. It is crucial to maintain a
balance between exports and imports and ensure that the terms of trade are favourable for
both countries to foster a mutually beneficial trade relationship.
How best to describe the trade relationship between India and the United States today?
The US was India's largest export destination and second largest trading partner in 2020-
2021. US exports to India were slightly below imports from India, but India was still among
the top 15 US export markets last year. US Trade Representative Catherine Tai, who visited
India on her first official visit, told US President Joe Biden and her that trade relations
between the two countries are a top priority.
Of course, there is friction due to conflicting interests and expectations. This happens because
they are at different levels of development and have different priorities. But common interests
almost always outweigh the wrinkles.
In 2020-21, India's exports to the US were $51.62 billion and imports were $28.88 billion,
bringing the US trade deficit to about $23 billion. Best-selling commodities include pearls
and jewellery, pharmaceuticals, machinery and electronics, clothing, vehicles, chemical and
fish products, optics, photography, medical equipment, and aluminium.
Have Trade Relations Improved Under the Trump Administration?
Donald Trump and Prime Minister Narendra Modi seemed to get along whenever they met,
but it didn't really lead to much gain for India. Conversely, the Trump administration has
introduced many restrictive trade measures. He has unilaterally imposed punitive import
duties on steel and aluminium from India and some other countries under the pretext of
protecting national security interests. Trump also removed duty-free export (GSP)
exemptions for Indian exporters of certain goods and continued to pressure India to import
more from the US to help fill the trade deficit. The former US president also attempted to
negotiate a free trade agreement with India, but was inflexible on his key demands in areas
such as medical equipment, dairy and agricultural products.
What is the Biden administration's view on issues coming from the Trump
administration?
On the face of it, the Biden administration appears to be more lenient than previous
administrations, where India had a trade surplus with the United States. But he has yet to take
steps to reverse Trump's hard-line measures, such as imposing import tariffs on steel or
removing GSP incentives. On a positive note, Biden is lowering some of Trump's work visa
restrictions, which will certainly help Indians. And we cannot rule out the possibility that the
USTR may interact with India regarding the elimination of tariffs on steel, as was the case
with the European Union recently. The focus on pushing the interest of digital industry
(taking a stand against data localisation), e-commerce players, pharmaceutical majors and the
agriculture and dairy sector is common to both governments.
What is the potential of this relationship?
There exists a considerable potential for growth in trade and investment ties, especially
following the trade war between China and the US that began during Trump’s tenure. The
Covid pandemic has also driven home the importance of diversifying supply chains (beyond
China). While the USTR identified digital economy, services, health-related trade and
agriculture as potential growth areas, there is also scope for growth in traditional areas of
exports such as garments, gems and jewellery, chemicals, electronics and machinery. In the
field of investment, India has lowered FDI barriers in almost all sectors, most recently in
defence, and there are opportunities for cooperation.
INDIA’S EXPORT TO USA

India's exports to the United States are diverse, with the country exporting a range of goods
and services that cater to the needs of U.S. consumers and businesses.
Pharmaceuticals are one of the top exports from India to the United States, with India being a
major supplier of generic drugs to the U.S. market. India's pharmaceutical industry is one of
the largest in the world, and the country has become a key supplier of low-cost generic drugs
to the United States. The U.S. pharmaceutical market is highly competitive, and Indian
companies have been able to carve out a significant market share by offering cost-effective
alternatives to expensive branded drugs.
Textiles and apparel are another significant export from India to the United States. India has a
rich tradition of textile manufacturing and is known for its high-quality cotton and silk
fabrics. The country's textile industry employs millions of people and has been a major
contributor to India's economic growth. India's textile exports to the United States include a
range of products such as cotton yarn, fabrics, and garments.
India is also a significant exporter of gems and jewellery to the United States. India's
jewellery industry is highly skilled and has a long history of producing exquisite pieces of
jewellery. The country's jewellery exports to the United States include gold and silver
jewellery, diamonds, and precious stones.
Machinery and engineering goods are other major exports from India to the United States.
India's engineering goods, such as machinery, pumps, and electrical equipment, are in high
demand in the United States. Indian companies have been able to offer high-quality products
at competitive prices, which has helped them to gain a foothold in the U.S. market.
Organic chemicals, such as dyes, pigments, and fertilizers, are also significant exports from
India to the United States. India is a major producer of organic chemicals and has been able
to leverage its expertise in this area to become a major supplier to the U.S. market.
India's exports to the United States are diverse and cater to the needs of U.S. consumers and
businesses. From pharmaceuticals to textiles and machinery, India has been able to leverage
its strengths to become a major player in the U.S. market. With continued investment in
technology and infrastructure, India is well-positioned to further expand its exports to the
United States and other markets around the world.
INDIA’S IMPORT FROM USA

India's imports from the United States are diverse, with the country importing a range of
goods and services that cater to the needs of Indian consumers and businesses.
Crude oil and natural gas are some of the top imports from the United States to India. The
United States is the largest producer of crude oil in the world, and it has been supplying a
significant portion of India's energy needs. India's demand for energy has been growing
rapidly, and the country has been diversifying its sources of energy to meet its growing
needs.
Aircraft and aircraft parts are also significant imports from the United States to India. India's
aviation industry has been experiencing rapid growth in recent years, and the country has
been investing heavily in the modernization of its airports and the expansion of its airline
fleet. The United States is a major supplier of aircraft to India, and Indian airlines have been
placing large orders for Boeing and Airbus planes.
Machinery and equipment are other major imports from the United States to India. India's
manufacturing sector has been growing rapidly, and the country has been importing
machinery and equipment to meet the growing demand for industrial goods. The United
States is a major supplier of high-quality machinery and equipment to India, and Indian
companies have been leveraging this technology to improve their productivity and
competitiveness.
Precious stones, such as diamonds and rubies, are also significant imports from the United
States to India. India is a major centre for the processing and cutting of diamonds, and the
country has been importing rough diamonds from the United States for processing in India.
The United States is also a major supplier of other precious stones to India, including
emeralds, sapphires, and pearls.
India's imports from the United States are diverse and cater to the needs of Indian consumers
and businesses. From energy to aircraft and machinery, the United States has been able to
leverage its strengths to become a major supplier to the Indian market. With continued
investment in technology and innovation, the United States is well-positioned to further
expand its exports to India and other markets around the world.
 CONCLUSION

The terms of trade between India and the United States have been a vital aspect of their
bilateral relationship. Both countries have enjoyed significant trade relations, with the United
States being one of India's largest trading partners. The two nations have had a productive
economic partnership, with bilateral trade reaching over $88 billion in 2020, making it one of
the most significant trading relationships in the world.
India has emerged as an important economic partner for the United States, and both countries
have worked to enhance their economic ties. India's major exports to the United States
include pharmaceuticals, textiles, gems and jewellery, machinery, and organic chemicals. The
United States' major exports to India include crude oil and natural gas, aircraft and aircraft
parts, machinery, and precious stones.
Several factors impact the terms of trade between India and the United States, including
global demand and supply, exchange rates, tariffs and trade barriers, technological
advancements, political stability, and natural disasters. These factors can have a significant
impact on a country's export and import competitiveness, and understanding them is crucial
for policymakers to make informed decisions to improve their country's terms of trade.
As the value of the Indian Rupee appreciates, Indian exports become more expensive, leading
to a decline in demand and a deterioration in the terms of trade. Conversely, a depreciation in
the value of the Indian Rupee would make Indian exports more competitive, leading to an
improvement in the terms of trade.
While the United States has generally followed an open trade policy, recent years have seen
the imposition of tariffs on several goods imported from India, including steel and
aluminium. This has impacted India's exports to the United States and created an imbalance
in the terms of trade. It is essential for the two countries to address any trade-related issues
and work towards reducing trade barriers to improve their trade relationship.
India has emerged as a significant exporter of software services and IT-enabled services,
while the United States is a hub of innovation and technology. The advancement of
technology has led to a shift in the nature of trade between the two countries, with technology
and services playing an increasingly important role.
The Indian government has recently introduced several reforms aimed at improving the
business environment, including the introduction of the Goods and Services Tax (GST) and
the implementation of the Insolvency and Bankruptcy Code (IBC). These reforms have
helped improve the ease of doing business in India, making it an attractive destination for
foreign investors.
Natural disasters such as floods and droughts can also impact the terms of trade between the
two countries. For example, the floods in Chennai in 2015 disrupted supply chains and
caused a significant drop in exports from India to the United States. Similarly, the impact of
the COVID-19 pandemic has led to a significant reduction in trade between the two
countries, highlighting the need for the two countries to work together to address any supply
chain disruptions and ensure the smooth flow of goods and services.
The terms of trade between India and the United States have been a vital aspect of their
bilateral relationship. Both countries have enjoyed significant trade relations, with the United
States being one of India’s largest trading partners.

REFERENCES

 www.outlookindia.com
 www.hindustantimes.com
 www.census.gov
 www.trade.gov

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