Despite increasing trade and growing strategic closeness, India-US trade tensions have actually increased. The traditional worries of agricultural trade and IPR have moved and now the Trump administration’s concerns are about trade deficit and ‘unfair’ trade practises.
United States President Donald Trump’s forthcoming India visit has the potential to determine India’s foreign economic and strategic policy direction. In the last three decades, successive US Presidents have recognised India’s potential to shape the emerging balance of power in Asia.
US President George W Bush and Prime Minister Manmohan Singh laid a foundation for a productive strategic partnership through civil nuclear and defense framework agreements in the mid-2000s. Along with Trump, Prime Minister Narendra Modi has further energised the relationship. To a large extent, Washington and New Delhi are united by the challenge of rising Chinese power, which in turn creates conditions for India-US strategic cooperation. Currently, more than 50 inter-governmental dialogue mechanisms are in place.
Strategic ties, however, has to be matched with productive economic partnership. As a developing country, Indians hope that as a major strategic partner, the US will provide its markets, investments and technology to India. After all, the US was a major factor in the initial economic take-off for most of the East and South East Asian miracle economies.
India-US bilateral trade in goods and services has grown from $16 billion in 1999 to $143 billion in 2018. Last year, only goods trade was about $88 billion. Investment inflows are still limited. As per government sources, investments from US companies in the last 20 years accounted only about $28 billion (6 percent of total investments).
In fact, a small country like The Netherlands has made more investment in India than the US. Since many investments are routed through third countries, the office of the US Trade Representative (USTR) puts US FDI stock in India at about $46 billion. The USTR also shows that Indian companies have invested about $10 billion in the US. In the last few years, Indian students are spending about $6 billion every year in the US. Since 2008, India has also signed defense contracts of about $15 billion with the US.
In the evolving geopolitical scenario, China has already emerged as a major power in Asia through its trade linkages as well as the Belt and Road Initiative (BRI). To slowdown the Chinese juggernaut, New Delhi is partnering with Washington through the QUAD, common outlook on the Indo-Pacific, military and logistic agreements, etc. Instead of taking advantage from the Chinese expansion in the neighbourhood, India has taken strong positions on the BRI. To some extent these steps have also irritated its traditional partners such as Russia. In return, India expects the opening up of the US markets for its exports and liberal visa regimes for its high-skilled professionals.
Despite increasing trade and growing strategic closeness, trade tensions with the US have actually increased. Traditional worries from both sides were more about agricultural trade and intellectual property rights. However, in the last few years, the Trump administration has suddenly raised concerns about trade deficit and ‘unfair’ trade practises.
It introduced new tariffs on few products, including steel and aluminium. Trump has also terminated India’s eligibility for the Generalised System of Preference (GSP). In 2018, more than $6 billion Indian exports had entered the US through the GSP. As India is part of G20, Trump has also ordered removal of India from the list of developing countries.
Similar to renegotiated trade deals under its ‘America first’ policy with Mexico, Canada, South Korea and more recently with China, Trump has also targeted India for some kind of ‘mini deal’. This deal was expected during his India visit. However, due to the strong Indian position, Trump seems to have postponed his ambition for a later date.
On trade matters, India has been a hard negotiator traditionally. The situation has become even more difficult in the last six years as the Modi administration has been very cautious about trade liberalisation. New Delhi has failed to conclude any major trade deal in the last few years. The most recent example is India’s refusal to join even the Regional Comprehensive Economic Partnership (RCEP).
Despite strategic congruence, New Delhi seems reluctant to offer any major trade concession to the US. In fact, India has raised retaliatory tariffs on many products, including on US almonds, walnuts, cashews, apples, wheat, peas, etc. The US also complains about many investment barriers, e-commerce rules and price controls on medical devices.
If there is not even a ‘mini’ trade deal during Trump visit, India under Modi will live up to its recent reputation of cautious trade negotiator. This flaw in the Indian approach will have its own implications for the Indian economy, as well as other trade negotiations, for example, with the European Union and the United Kingdom. To keep the momentum going, New Delhi also might have to agree to buy more US weapons and sign new energy deals.
At this point of time, India is vulnerable. The economy is slowing down. Exports are stagnated at about $300 billion per year in the last few years. Share of exports in the GDP has dropped significantly. A $5 trillion economy target in the next few years cannot be met without rising exports. So if Trump, instead of helping India through liberal trade and technology regime, tries to push hard bargaining on simple trade matters, it will have serious strategic consequences, particularly in Asia.Gulshan Sachdeva is Jean Monnet Chair and Chairperson, Centre for European Studies at Jawaharlal Nehru University. Views are personal.
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