It’s time to get into a trade deal, not trade war

By: | Updated: July 14, 2018 4:38 AM

The areas of differences between India and the US are not too many, and the gap is not that wide. The timing is right for India to emerge as the trade partner who can give President Trump a phenomenal deal and simultaneously focus on the investments that it requires for its own economic development. A good trade deal for the US doesn’t necessarily translate into a bad deal for India

trade war, trade deal, GSP, USISPF, Suresh Prabhu, US-India strategic, US-India relationshipThe US-India Strategic Partnership Forum (USISPF) is a non-profit committed to strengthening US-India strategic and economic relations.

Mukesh Aghi

Amongst talks of tariffs and retaliatory tariffs, along with the Generalized System of Preferences (GSP) Country Review, it’s time to give a thought to the way forward on the relationship between the world’s two biggest democracies and strategic partners. The positive trajectory set out between the US and India relations over the last few years needs a boost to sustain and expand the bilateral strategic and economic partnership. This is exactly why the two countries need to work on a pragmatic bilateral framework, not only focusing on trade but also on investments.

The US-India Strategic Partnership Forum (USISPF) is a non-profit committed to strengthening US-India strategic and economic relations. The USISPF has been involved with a number of events that have shown a flicker of hope on the horizon for both the sides.
The first sign was the recent visit of Indian commerce and industry minister Suresh Prabhu to the US, which signalled India’s willingness to engage with the United States Trade Representative (USTR) Robert Lighthizer. The second sign was the visit of a senior USTR team to India, led by Assistant US Trade Representative for South and Central Asian Affairs Mark Linscott, on June 26 to build on the dialogue between Lighthizer and Prabhu. This last-minute trip to India by Mark Linscott, along with India’s willingness to host him, was indeed a very positive development to leverage the opportunity to strengthen bilateral trade ties.

It may seem the stars are aligning. The areas of differences between the two countries are not too many in number, and the gap is not that wide. US President Donald Trump needs to show his constituencies that he can negotiate a good deal for the US, and he has also indicated his preference for bilateral trade agreements. The timing is right for India to emerge as the trade partner who can give President Trump a phenomenal deal and simultaneously focus on the investments that it requires for its own economic development. A good trade deal for the US doesn’t necessarily translate into a bad deal for India. Both the USTR and India’s ministry of commerce and industry may use fresh negotiations to proceed on the so-called “low-hanging fruits” on the already existing US-India Trade Policy Forum—an annual bilateral trade dialogue. Obstinate trade issues may be taken up progressively at a later stage.

American companies are looking for market access in India. It may not be a bad idea to provide market access to the US in some areas and negotiate investments in areas of interest to India. Trade is often followed by investments, and many American companies—including Exxon, General Electric, Caterpillar, Walmart, Amazon, Honeywell and others—have already shown that, once they have market access, long-term investments follow.

India needs huge investments and new technologies in a number of areas—defence, energy, infrastructure and manufacturing sectors—both for its national security and job-led economic development goals. The US has already demonstrated that it can be that partner for India, by bringing 41% of total foreign direct investments in 2016. And if the trend continues, there aren’t many global partnerships that are as complementary.

India’s priority to increase the manufacturing sector’s share in the country’s economic growth can be facilitated with US investments; in addition, progress on the “Make in India” initiative can generate a large number of jobs within India. If the US wants to levy tariffs on certain items, does it make sense for India to put retaliatory tariffs in response? Inflationary prices follow costly imports post increased tariffs; so, do retaliatory tariffs worth $240 million make a case over a much bigger risk of inflationary prices in an election year? So, why the big fuss, just to prove a point?

There is no denying the fact that US-India relationship assumes great significance not only bilaterally, but also globally. Now is the time to reaffirm this bilateral relationship with a holistic approach—and not merely from a transactional trade perspective. Prime Minister Narendra Modi has visualised a committed strategic and economic partnership between India and the US, but short-term gains through tariffs in the trade relations may prove to be a bottleneck in achieving the longer-term goals of this relationship.

The decision to send a USTR delegation to New Delhi within 10 days of minister Suresh Prabhu’s visit to Washington, DC, is a very positive signal from the American side. Following the USTR delegation visit, the ministry of commerce and industry has signalled another round of negotiations in Washington, DC, around mid-July.

The USISPF views these efforts from both sides to maintain momentum in negotiations a very positive sign. Well-received by the USTR, minister Suresh Prabhu’s visit was an ice-breaking initiative, and the subsequent efforts must yield results in the shape of a roadmap towards a matured relationship. A concrete progress on even one or two specific trade issues may translate into important building blocks for a more robust future trade engagement. India must consider taking pragmatic steps to address the long-standing issues of the US industry to demonstrate its seriousness to renew the promising strategic and economic partnership with the US.

The Author is President & CEO, US-India Strategic Partnership Forum (USISPF). Views are personal

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