Can India-US economic ties move beyond trade dispute towards stronger Indo-Pacific relations?

Updated: Feb 25, 2020 6:21 PM

Acknowledgment does not negate the fact that trade is still an obstacle in India-US ties.

US-India, US-India ties, Indo-Pacific, economic waters, global economy, big trade dealTrump’s visit to India was expected to promote a political understanding to navigate this dispute, which is neither favorable to the US nor India. (Bloomberg image)
  • Jagannath Panda

On February 24, 2020, at the Motera Stadium, Ahmedabad, the United States President Donald Trump described India as a growing “economic giant” of the century. It symbolised the acknowledgment of India’s economic potential by the US. It is said that acknowledgment often leads to acceptance. And yet, to what extent will this encourage the US to foresee India as a stronger economic partner needs to be seen. Such acknowledgment does not negate the fact that trade is still an obstacle in India-US ties, compounded by the Trump administration’s decision to tag India as a ‘developed economy’ and removing its special trade status under the Generalized System of Preferences (GSP).

Trump signaling that a “big trade” deal might happen with India before the US elections point to the ‘America first’ approach that his administration has brought to the fore. The US President’s recent visit could have, in fact, raised a better political context to expedite stronger economic ties between the two sides. India has hoped to find in the United States a strategic partner for the Indo-Pacific with a stronger economic and security mandate to cooperate with. However, considering the current geo-economic imbalance that Trump’s approach towards most partners in Asia including India has created, can India-US economic partnership move beyond their trade dispute and develop a regional character with a stronger focus on the Indo-Pacific?

It is true that the regional multilateral trading environment has entered a new chapter of interaction and integration without the United States and India. Donald Trump’s bold withdrawal from the Trans-Pacific Partnership (now concluded as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) minus the US) and Narendra Modi’s courageous call for not partaking in the final negotiation of the Regional Comprehensive Economic Partnership (RCEP) at the 2019 East Asia Summit has created a unique regional economic flux.

This is getting more complicated with the continued US-China trade and tariff rivalry, which is more about power contestation, and the Japan-South Korea trade disputes that are heavily based on self-serving political motives in order to enjoy an edge over the other’s image in East Asia’s balance of power framework.

Trump’s transactional approach towards India and Modi’s nationalist intent to protect the Indian economy without succumbing to external pressure have complicated their economic ties. The US government has also begun evaluating trading nations on the basis of bilateral trade deficits, which led to large-scale tariff impositions. This attracted retaliation by many nations who have been on the receiving end of restrictions, including India.

In such a scenario, the long-pending proposal for an Indo-Pacific Economic Corridor that the US envisioned with India much before Trump arrived in power- factoring East Asia, Southeast Asia, and South Asia – hangs in jeopardy. The India-US trade dispute has added more complexities to the regional economic architecture with India’s e-commerce restrictions being another source of irritation.

Companies like Amazon and Walmart have been hurt, not to mention millions of Indian consumers who were beginning to get their benefits, of assured quality, delivered at reasonable prices. India should encourage more competition in this area rather than impose restrictions on global e-commerce companies that also provide avenues for Indian companies to enter global value chains.

Each of these disputes explicates a story of protecting their respective national economic and political interests. Yet, the India-US trade disagreement does not really scale at the level of US-China and Japan-South Korea disputes. The stature of both the US and India do not validate that their projected ‘partnership for prosperity’ should suffer on a GSP to ‘developed-developing’ dilemma, which weakens their conjoined effort for effective Indo-Pacific collaboration. What must be realized is that trade disputes between India-US are not as serious, hence should not be escalated further. Both sides need to position their strategic and economic interests as a top priority, especially in the post-TPP and post-RCEP regional trading economic environment.

Trump’s visit to India was expected to promote a political understanding to navigate this dispute, which is neither favorable to the US nor India. While defence technology and security paradigms are important considerations, they should not necessarily be the crux of their partnership in the Indo-Pacific. A mutual apprehension towards a rising Chinese economic and maritime clout in the Indo-Pacific that is threatening the status-quo of the region must also not be the basis of their partnership.

Rather, a stronger trade contact that spurs mutual economic growth should take lead in developing the future of India-US ties. A growing trade relationship of more than US$ 90 billion, deepening cooperation in the Indo-Pacific to advance infrastructure connectivity and protecting maritime resources call for a stronger economic partnership between the strategic partners. This envisioned economic partnership must begin with infrastructure building to advancing supply chain networks and multilateral economic partnerships holding India and the US as the kingpin. Defence trade is an important aspect that will strengthen the India-US partnership.

In this regard, Trump’s visit to India has come bearing due gifts, with the signing of a $3 billion defence deal allowing India to complete its pending purchase of 24 MH-60 Romeo helicopters for the Indian Navy and 6 AH-64E Apache helicopters for the Indian Army. India’s inclusion in the US-list of license-free exports, re-exports, and transfers under License Exception Strategic Trade Authorization (STA-1) adds strength to their defence trade, even though the nature of these deals are purely business-oriented.

The focus should be on two-way trade in defence sector, advancing to defence manufacturing supply chain linkages. A successful negation on the Industrial Security Annex (ISA) will advance defense industrial cooperation, hence becoming a strategic necessity. ‘Make in India’ itself can prove to be a major point of defence technology and trade cooperation; India has already made progress under this initiative with the production of Howitzer guns for the Indian Army. Future 2+2 Ministerial Dialogues should be encouraged as the previous meetings have proved fruitful with the signing of the Communication Interoperability and Security Memorandum Agreement (COMCASA).

The “new normal” economy being advocated by China since President Xi Jinping used the term at the 2014 Asia-Pacific Economic Cooperation CEO Summit is poised to create a structural imbalance in Asia. The 13th Five Year Plan of China has also incorporated the “new normal”; this coupled with a boost in Belt and Road Initiative (BRI) outreach goes to show how China’s focus on economic dominance remains primary. For China, the growth trajectory has moved from economy to defence.

However, for the US, the focus on Asia has always been centered around security and defence, with special emphasis on the Indo-Pacific. Now, defence trade between India and the US must serve as the cornerstone for a growing synergy that can be translated into effective and rich Indo-Pacific collaboration. It is vital for its ‘strategic partnership’ to also become an investment partnership in the region.

US Indo-Pacific focused initiatives like the Blue Dot Network, ARIA, BUILD Act, AsiaEdge and ITAN are attempts by the US to enter the infrastructural connectivity market in Asia. This provides scope for convergence of India-US interests and economic partnership; however, such a partnership can only bear fruit if the US is able to convince India that its infrastructural connectivity ambitions for Asia are “inclusive” in nature. US approach to the CP-TPP has also been nuanced while Japan, India’s global strategic partner, seems to hold a positive narrative on India becoming an integral part of the regional trading environment on a longer run. Importantly, Japan’s keen interest to bring India back to RCEP is a motivating factor that must encourage the US to review its approach towards India as a regional partner; even though the US is not a part of the RCEP and the CP-TPP.

Will the US consider it necessary to review its approach towards India? The answer is most likely in adverse. Trump’s recent visit to India, while grand, did not allay fears that the US approach towards India on trade disputes is going to be indulgent or accommodating. From the US’s side, a full restoration of the GSP ranking should not be expected. However, a partial restoration to exporters from India might be possible; but this will also be imposed only in sectors where US importers depend on Indian goods. India stands to benefit greatly by attracting foreign direct investment from the US companies that are hastily exiting China at present. President Trump must also realize that concurrent with a growth in trade tensions, India has grown into an important strategic partner for the US in the Indo-Pacific.

Jagannath Panda is Research Fellow and Centre Coordinator for East Asia at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. He is also the Series Editor for Routledge Studies on Think Asia. Views expressed are the author’s personal.

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