India-US trade: Are we reaching a point of no return?

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New Delhi | Published: June 25, 2019 2:51:15 AM

Restoring normalcy in India-US trade relations will need a strong dose of injection of trust.

india, us, india us trade, tradeIndia-US trade talks are taking place in the context of troubled times for global trade.

India’s relations with the US have entered a particularly rocky phase due to differences over trade. The US Secretary of State Mike Pompeo’s visit to India as part of his four-nation tour of Asia is expected to focus on progress on clearing trade hurdles in the relationship. While there might not be enough time to reach specifics before Prime Minister Modi and President Trump’s likely meeting at G20 in Japan, many quarters feel some encouraging signals from the Secretary of State’s visit might revive hopes of future breakthroughs.

India and the US have hardly seen eye to eye on trade. Even then, the current hostilities, are different from those in the past for various reasons. A close look at these reasons reveal why moving ahead would be exceptionally difficult.

First, President Trump’s tenure reflects major changes in the US approach to trade, now characterised by disregard for global trade rules, treating all trade relations exclusively and with American interests uppermost, and pulling trade and security interests as close as possible. The impact of these new characteristics in the US trade vision has been substantial for its major trade partners, including India. Nothing makes Indian trade policy czars more uncomfortable than talking trade outside of the WTO. The US emphasis on drafting deals bilaterally, with scant attention to what that might mean for greater collateral obligations at the WTO, is of distinct discomfort to India. It is equally uncomfortable for India to visualise the prospects of paying a ‘price’ for safeguarding a major strategic relationship, where defence alliance has begun playing a prominent role. For India, which has preferred keeping the two components of the relationship at arm’s length, the US determination to pull security and trade interests closer for ‘selecting’ partners is a tough call to reciprocate.

Second, is the change in India’s way of looking at the world. Pushing national economic interests is at the centre of India’s current external engagement vision. Such a vision, at best, permits selective opening up after very careful assessment of the impact on domestic economic actors. The US demands for greater tariff liberalisation from India are in sectors like dairy, medical equipment and automobiles. Indian policymakers and trade negotiators believe impact of tariff cuts on these sectors would be significantly adverse. One might well differ with this view. But, Indian authorities are unlikely to buckle to US pressure on tariff cuts in these areas, unless something really significant is offered in return. A trade-off on lesser terms would be taken as compromising on national economic interests—an impression that could run counter to the narrative that has helped the current government obtain political extension and legitimacy.

Third, India-US trade talks are taking place in the context of troubled times for global trade. The trouble goes well beyond overall technological disruptions, and their impact on the character and pattern of global trade. The US-China trade war is an unavoidable context. The former is not limited to unilateral tariffs and counter-responses. It is about long-term global control over future industries that would be at the forefront of Industrial Revolution 4.0. By now, it is clear that the US is looking to curb China’s technological dominance in several industries—such as electric vehicles, renewable energy and digital AI-based solutions—which would determine wealth generation in future global economy. Parallel talks by the US with its other trade partners cannot avoid apprehensions of the latter that the US wouldn’t want them to get away with what it is denying China.

A fourth further reason, drawing from the above, is India’s realisation that what the US would want most is for its data-intensive businesses to have unfettered access to India’s digital economy. India realises it sits on a mine of data wealth and, arguably, the best way of harnessing that wealth in national economic interests is to make its first use at home. It is determined to pursue hard data localisation rules. In recent months, multiple critical references by the US to India’s data rules have made it clear that more than tariffs, this is where the ‘juice’ lies for the US.

Safeguarding local data for exclusive use by locals, notwithstanding the potential ramifications of such insistence, resonates with the core principles of India’s current external engagement policy.

The final fifth reason coming in the way of progress in India-US trade talks is the conspicuous lack of trust between both sides. The US proclivity to resort to unilateral actions notwithstanding done deals, such as for Mexico, hasn’t helped in boosting trust in its trade promises. On the other hand, India’s stubbornness in refusing to back down on core US demands and the latest defiant act of following up with retaliatory tariffs on a handful of US imports clearly show that India is not in a mood to relent. Barring a strong dose of injection of trust, the India-US trade talks are likely to move to a point of almost no return.

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