Page 67 - Bloomberg Businessweek July 2018

◼ ECONOMICS
Trade Trump’s Threats

recognize nonperforming loans; it’s been lean-
ing on bank managers to cut off credit to “willful Tariffs on imports were once the chief
defaulters”—companies that have stopped servic- source of federal revenue. If all Trump’s
ing their debt even though they have the ability to tariffs were imposed, their contribution to
pay. Modi’s administration also has pledged $33 bil-
lion to recapitalize state banks. government revenue would be the highest
The government’s push to speed up the since the 1930s. —Peter Coy
bankruptcy process has another dimension.
Authorities are under pressure to help generate
jobs for the 12 million young Indians joining the Share of federal revenue from customs duties
labor force every year. One way of doing that is to Before the tariff
quickly find new owners for idle steel plants and 1 00% fight began,
other assets so they can be brought back online. 1.2%
In India, the implementation of government of federal
policy is often chaotic. There aren’t enough bank- 5 0 revenue, or
ruptcy courts—only 10 nationwide—or judges to $40b,
hear all the cases promptly and efficiently. At the was expected to
come from tariffs
appeals tribunal in New Delhi, the top judge has 0 this fiscal year
complained he can’t hire support staff because the 1820 2018*
salaries on offer are too low. The courtrooms are
overcrowded, with people spilling out into the hall- *2018 FORECAST FROM THE OFFICE OF MANAGEMENT AND BUDGET; DATA FOR 1843 ARE INCOMPLETE, SO THE FIGURE SHOWN IS
AN AVERAGE OF THE PRECEDING AND FOLLOWING YEARS; DATA: CONGRESSIONAL RESEARCH SERVICE, OMB
way and bags of documents littering the floor.
The government has had to amend the law to
stop business owners who default on debts from
bidding on their own company’s assets in the Annual revenue to U.S. from existing and possible new tariffs
course of bankruptcy proceedings. In the Essar ◼ Baseline tariffs ◼ Newly approved tariffs* ◼ Threatened tariffs 31
Steel case, a lawyer representing ArcelorMittal
claimed that the VTB Capital-backed consortium Duties on clothing and footwear have
was merely a front for the Ruia brothers, a been the biggest revenue raisers until
this year.
pair of billionaires who control Essar Group,
a conglomerate also involved in shipping and $40.4b
Baseline projection for customs
oil refining. revenue Revenue from metals tariffs is pouring
in—as are complaints from importers
More important, some of the cases adjudicated $9b Duties on steel, aluminum and trading partners.
by the tribunals are also getting bogged down in $12.5b Tariff of 25 percent on Tariffs on the first $36 billion of the
bitter, protracted legal challenges. Tata Steel’s win- $50 billion in Chinese products $50 billion are slated to take effect
ning $5.1 billion bid for bankrupt Bhushan Steel on July 6.
Ltd. is being disputed by a rival bidder. The appel-
late tribunal recently put the Essar case on hold $73 billion is almost certainly too big
until late July, allowing the legal process to continue an estimate. It assumes a high tariff
beyond the 270-day limit that would otherwise trig- on all autos and all vehicle parts from
all countries. Trump is focused on
ger a court-mandated liquidation. a 20 percent tariff on cars from the
Despite the problems, some India-watchers are European Union.
upbeat about the direction the country is mov- $73b
25 percent duty on auto imports
ing. “India’s new bankruptcy code is now mak- from all countries
ing a significant difference to the speed at which $20b Trump has threatened this if China
bankruptcy cases are resolved and the amount 10 percent tariff on $200 billion retaliates against the first set of duties.
in Chinese products
that creditors are able to recover,” says Shilan $20b This would kick in if China retaliated
COURTESY ESSAR STEEL; DATA: WORLD BANK for India’s beleaguered banking sector and the These Tax Foundation estimates assumed DATA: TAX FOUNDATION, OMB
Shah, a Singapore-based analyst for research
10 percent tariff on another
against the second set of duties.
company Capital Economics. “This bodes well
$200 billion in Chinese products
economy more generally.” �Iain Marlow, with
for simplicity that Americans wouldn’t curtail
Upmanyu Trivedi
purchases. In reality, they almost certainly would.
THE BOTTOM LINE Implementation of India’s new bankruptcy
*NOT VISIBLE: $150M FROM DUTIES ON WASHING MACHINES; REVENUE FROM SOLAR PANEL TARIFFS NOT CALCULATED;
code has been complicated, but observers are optimistic that it will
help reduce pressure on banks and create jobs.