US-India trade relations: India should keep cool, keep calm, and carry on

ByFrank F Islam
Nov 02, 2018 06:02 PM IST

India should ignore the US president’s rhetoric. It should continue to stay the course in its current approach to trade negotiations with the US.

There is no trade war today between India and the United States. On the other hand, there is not exactly peace.

Prime Minister Narendra Modi and US President Donald Trump(PTI)
Prime Minister Narendra Modi and US President Donald Trump(PTI)

In early October, President Donald Trump called India “the tariff king, bringing to the fore bilateral trade frictions that have been simmering beneath the surface for a while. They’ve already called us to make a deal,” he said. “We didn’t even call them. They called us to make a deal, which is, like, shocking to people.”

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The point the US president was making in his comments — primarily for the consumption of the US domestic audience — is that he is “winning” in the tussle in trade relations with India. Winning in the public spotlight matters more than anything else to this president.

Recognising this, India should ignore the president’s rhetoric. It should continue to stay the course in its current approach to trade negotiations with the US.

To date, New Delhi has been quite patient with the Trump administration. It understands that the prevailing weltanschauung in Washington is more protectionist than it has been for decades. Unlike China, which has announced targeted tit-for-tat tariffs on US goods, New Delhi has largely worked behind the scenes with US officials, thus preventing any escalation.

India recognises that, in dealing with Trump, one is more likely to succeed by adopting the tactics of Mexico and Canada, which have already renegotiated the North American Free Trade Agreement, rather than that of China.

This perspective is a solid one because of the economics involved. That’s so because the opportunity and need for India is to maintain the growth trajectory of bilateral trade with the US, which has been consistently growing at an impressive rate since 1991.The country’s bilateral trade in goods with the United States in that year stood at $5.2 billion with exports of nearly $3.2 billion and imports amounting to roughly $2 billion.

Last year, the India-US bilateral trade volume was more than $74 billion. Adjusting for inflation, $5.2 billion in 1991 is $9.2 billion in today’s dollars. This means that the bilateral trade has grown eightfold in this time period.

There are several reasons that the trade between the two nations has registered such substantial growth over the past quarter century. The liberalisation of the Indian economy and its subsequent expansion is foremost among them. An improvement in bilateral relations in the post-Cold War era is another factor.

A big reason, in addition, is the fact that neither nation has allowed their differences to come in the way of trade. There have been frictions all along, as is evident from the number of complaints each country has filed against the other through the years with the World Trade Organization over unfair trade practices and protectionism.

Over the decades, the United States has complained about India’s patent laws, which, according to Washington, cost American companies billions of dollars. In recent years, India has protested the tightening of H-1B visa rules, specifically targeting Indian companies, by successive US administrations.

There are numerous examples of other points of disagreement. Despite these differences, the governmental leadership and business communities in both countries have been able to achieve a rapprochement and engage in meaningful and constructive dialogue that has been mutually beneficial

With the current administration, this coming together and meeting of the minds is much more difficult. Recently, a top-ranking Indian official complained, off the record, that bilateral trade talks with the United States have essentially become a one-way street. According to that official, all the US representatives want to hear in bilateral meetings is how much more India will buy from the United States.

The simple view on trade for the US now appears to be that “Buying is bad, selling is good.” Some label this view or policy as “transactional”.

But transactional it is not. Transactions involve buying and selling — not just selling.

Rather than transactional, this view is nationalistic. And, as President Trump has recently proudly proclaimed, he is a nationalist.

Nationalism in and of itself is neither bad nor good. What matters is how that nationalism is practised.

Exercised prudently, and in the recognition that most other developed and developing countries are nationalistic also, it can provide a platform for establishing reciprocity and economic interdependence. This can create the basis for fair trade agreements rather than isolationism or protectionism.

Such agreements are critical to the future growth of trade. As Columbia University economist, Jagdish Bhagwati, has observed, historical experience proves that “the case for protectionism is flawed” and the “link between trade openness and economic prosperity is strong and suggestive”.

The India-US trade has the potential to exceed $500 billion within the next several years. One study forecasts it could reach $1 trillion by 2030.

India and the US both have the potential to be big winners on the economic battlefield. This is not a winner takes all competition. The victory will be a shared one that can only be achieved through compromise and collaboration. While the current leadership of the US does not seem to grasp this, it cannot and must not be ignored by India.

India must stay the course in its trade relations with the US. It must keep cool, keep calm, and carry on. By doing so, it will make itself a winner and bring the US along with it.

Frank F Islam is an entrepreneur, civic leader, and thought leader based in Washington DC.

The views expressed are personal

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