Trump presidency may rekindle trade friction with India because protectionism is at the core of his economic agenda

Prime Minister Modi and President-elect Trump have excellent personal relations. How they work together and build a better future for both countries will be watched with interest.

Biswajit Dhar

We should expect Donald Trump to increase tariffs. Not just because he did it last time, this time around the US has in place an industrial policy. As we saw in the case of electric vehicles, they hiked tariffs. Whenever there is an industrial policy, in a situation where a manufacturing base has to be built up, from the ground virtually as is the case with the US, you generally need tariffs to protect the infant industries. Even in the case of India, in certain sectors we have used tariffs to support such industries.

Going forward, we can expect this to happen. In the case of India, Trump last time around raised the issue that India has a trade surplus vis-a-vis the US and that’s because India doesn’t import enough, especially agricultural products. So, he had been insisting India increase its imports from the US and balance its trade. So he actually talked about levelling the playing field.

I think the same set of issues are going to turn up. He’s going to maintain the same narrative as far as trade is concerned. Trump infamously called India the “Tariff King”. That was the point at which he was targeting India for higher tariffs.

I think we are going the see the second edition of what he did the last time. US will target select sectors where the country is trying to ramp up domestic manufacturing. That is going to be the way forward.

WTO has a bleak future

Trump started the process of effectively dismantling WTO. The heart of the WTO is the dispute settlement mechanism. He broke the appellate body and the made the dispute settlement process completely ineffective.

Going forward, Trump could deal a body blow to WTO. Which way is he going to go is something that we will have to wait and watch. He doesn’t like multilateral organisations because he wants to do things on his own terms. It’s going to be a sad day because we need a multilateral rules-based framework for conducting trade. In its absence, there will be anarchy. We can’t lapse into it, with countries doing what they want, based on muscle power. Hedging against that kind of system is what WTO offers. The risk of dismantling the WTO can be phenomenal.

Regional groupings as an alternative

The trend towards regional groupings is already in place. The question now is whether Trump is going to buy into this approach or just do bilateral deals.

In his first term as President, he walked out of Trans-Pacific-Partnership Agreement which Obama had worked on as his pivot to Asia. The Biden Administration put in place the Indo-Pacific Economic Framework (IPEF) for Prosperity, which is its version of pivot to Asia. I have my doubts if Trump will buy into IPEF. That will be the acid test of whether he will go in for regionalism or he would prefer to cut just bilateral deals.

India-US FTA

An FTA is not likely to happen. The US has seeking larger market access for its products in India and has been targeting the agricultural sector. Successive US Administrations have made excessive demands on India in terms of liberalisation. India hasn’t been able to accommodate those demands because of domestic sensitivities. The important thing for India is how do we keep our largest export market intact. How do we keep it from eroding because Trump is likely to be much more protectionist as he would stand by his election slogan of making America great again. If he really stands by that, protectionism is going to be the way forward.

Modi-Trump ties could help

India and the US have had differences on trade and investment issues, and especially on intellectual property protection. Even on investment, earlier US administrations have had problems with the way India manages its investment policy, especially with bilateral investment treaties because we have our own model bilateral investment treaty now. These differences have persisted irrespective of whether there is a Democrat or a Republican as President. All these issues may play out.

But the important thing here is we have a bilateral process going between the countries, and how we navigate through this process and strengthen our bilateral economic ties is going to be important.

Prime Minister Modi and President-elect Trump have excellent personal relations. How they work together and build a better future for both countries will be watched with interest.

Biswajit Dhar is Distinguished Professor, Council for Social Development. Views are personal and do not represent the stand of this publication.