Trump has made India’s trade headache more acute. But he has also opened up opportunities
INDIAN EXPRESS
FEBRUARY 20, 2020
A sense of crisis has always marked the public discourse on India-US relations. It is no different as Delhi prepares to receive US President Donald Trump early next week. The perennial anxiety about the relationship is now reinforced by a new element — deep domestic polarisation in both countries.
The Democrats in the US have struggled to oust Trump from the White House and rarely find anything they can agree with their President on. While ousting Narendra Modi through a legal process of impeachment is not an option in India, the political divide is even deeper.
Meanwhile, under Trump, consensus on foreign policy in Washington has broken down. In Delhi, the Opposition has never been willing to acknowledge the diplomatic successes of the Modi government. But the usually bipartisan support for foreign policy in the strategic community has eroded. Many leading voices of the establishment who have a long and distinguished service have become major critics of Modi’s foreign policy.
In Washington, Trump’s foreign policy in general and his engagement with India has been criticised as too transactional. In Delhi, Trump’s visit is being derided for the apparent lack of substance and the focus on atmospherics.
Yet, if we step back we will find there is much that is impressive in the bilateral relationship. Take the most contentious issue in play between Washington and Delhi today — trade. In 1995, total two-way trade, including goods and services, between India and the US was $11 billion. In 2018, it crossed $140 billion. It is reported to be around $150 billion in 2019. A 14-fold increase in trade turnover in 25 years is certainly not something to sneer at. India’s China trade too has risen, even more rapidly. From a couple of hundred million dollars in the mid-1990s to nearly $90 billion in 2019. But unlike the US, where India enjoys a surplus of nearly $23 billion, it has a deficit of nearly $57 billion with China. Can India and the US do better on trade? Yes, of course. Only a few years ago, the two sides were looking at an annual trade target of $500 billion. That looks rather ambitious amidst the current disputes.
That brings us to the seriousness of the current trade disputes between Delhi and Washington. That we have made great progress in the last two decades should not minimise the significance of the current headwinds facing the economic relationship. The two sides have struggled to finalise a minor trade agreement worth $10 billion — some have called it “small potatoes”— before Trump lands in Ahmedabad on Monday. When Modi met Trump in New York last September, Indian officials were saying the agreement was just round the corner.
Trade has long been a contentious issue between Delhi and Washington. There had been enduring tension since the late 1980s between the US demand for greater market access, intellectual property protection, and a host of other demands and India’s own cautious approach to economic liberalisation. All recent US administrations have applied continuous pressure on India for trade agreements. The pressure has significantly risen under President Trump.
If his predecessors were willing to cut some slack for India by citing larger political and strategic considerations in the bilateral ties, Trump has put trade disputes at the front and centre of the relationship. His officials in the Department of Commerce and the US Trade Representative’s office have adopted extremely aggressive tactics in the negotiation with India.
But Trump’s trade offensive is not borne out of a special animosity towards India. Trump has undertaken a radical reorientation of US trade policy. For Trump, this is a matter of long-standing ideological conviction as well as a political convenience. He has bet that the anti-free-trade White working classes in the American rust belt are the key to his re-election.
You could certainly quibble with the assumptions underlying Trump’s trade policy. Given America’s pole position in the global trading system, you have no option but to deal with it. For Trump is getting away with his demand for the restructuring of trade relations with key economic partners. He has renegotiated the NAFTA with neighbours Canada and Mexico and has compelled China to start reducing the massive trade deficit with the US.
The media cites Indian officials complaining about the negotiating tactics of Trump officials, who are demanding ever more and have taken old markers — like the GSP — off the table. The complaints certainly seem believable, given the trouble China has had negotiating an interim trade agreement with the US worth $200 billion. While Trump won’t stop saying Xi Jinping is his “best friend”, his trade officials never let up on the Chinese negotiators. Trump sings the same song with India. Earlier this week, Trump is reported to have said that “he likes Modi a lot” but insisted that the “US has not been treated well by India”.
President Xi certainly took a lot of it on the chin. For he understood the importance of a vigorous trading relationship with the US that stood at $737 billion in 2018 and more deeply on the role of trade, especially with the US, in transforming China’s fortunes at home and beyond.
In response to Trump’s pressure, Xi reaffirmed his commitment to economic globalisation and domestic liberalisation and wooed American investors with even greater vigour than before. Modi appears to be sending the opposite signal — of a definitive drift towards protectionism. India’s trade troubles are certainly not limited to the engagement with the US.
Delhi walked away at the very last minute from signing the RCEP agreement last year to deep disappointment among its partners including the ASEAN, Australia, Japan and New Zealand. One of the main arguments cited by India was the massive trade deficit with China and the potential danger of it widening further under RCEP.
The European Union is reluctant so far to restart trade negotiations that ended in great frustration for Brussels some years ago. Australia and New Zealand have given up. India’s immediate neighbours complain that South Block’s rhetoric on connectivity and regionalism is matched by the multiple non-tariff barriers that continue to constrain commerce across the South Asian frontiers. It is certainly probable, statistically one in a million, that the fault lies, always, with India’s partners. But one would think there might be a real problem with Delhi’s own trade policies.
Trump has certainly made India’s trade headache more acute. But he has also opened up opportunities. His trade war on China has put pressure on the global supply chains centred around China. Many companies are moving their production out of China; but only a few are turning towards India. While Delhi has talked the talk on taking advantage of the US-China trade war, it is yet to get its act together.
What makes Delhi’s devaluation of trade as a key instrument of economic growth potentially irreversible is the fact that there is little domestic political opposition to it. While many are pushing back against Modi’s recent domestic policies, few are willing to speak against the creeping protectionism. One of the rare moments in the last few years when the Congress cheered Modi was when he turned India’s back on RCEP!
For now, though, India’s partnership with the US might not only survive the current trade tensions, but advance during Trump’s visit: There is so much happening elsewhere in the relationship — especially in the defence and security domain. But the time has come for Delhi to take a hard look at its current trade policy that threatens to undermine India’s regional and international prospects.
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