While the United States carries its ninth largest trade deficit with India, the country is still seen as an important growth market for powerful U.S. companies.
President Donald Trump's decision to end India's preferential trade status comes at a politically sensitive moment for the emerging market nation which is struggling with two domestic challenges.
India is also consumed by its feud with neighbor Pakistan after a series of clashes in the past month. While tensions have de-escalated, experts on the ground tell CNBC the situation is still tense with elevated military presence at the Kashmiri border, increasing the potential of an unintended conflict between the two countries.
"Due to various initiatives resulting in enhanced purchase of U.S. goods like oil and natural gas and coal the U.S. trade deficit with India has substantially reduced in calendar years 2017 and 2018." "India has implemented a wide array of trade barriers that create serious negative effects on United States commerce. Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion," U.S. Trade Representative Robert Lighthizer said in a press release.
If tensions rise, experts believe India could respond by implementing retaliatory tariffs. Pravin Krishna, professor of international economics and business at Johns Hopkins University, says that would ultimately hurt the American consumer.
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