After a year long embroilment in trade tiff, embracing tariff war and export subsidies, the Modi-Trump meeting, on the sidelines of G-20 summit in Kobe, became a game changer. It set a tone for readjustment rather than retaliation. Till now the USA was a staunch accuser of India’s high tariffs, saying it was the Tariff King and alleged India’s export subsidies as WTO non-compliant. Trump’s bullingy abrogated GSP (Generalized Preference Scheme) benefits, alleging India as one of the causes for the USA trade deficit. India has enjoyed a trade surplus with the USA for over a decade.
Last year, against the USA’s imposition of high tariff on steel and aluminum, India stoked a voice of retaliation by proposing high tariffs on 28 items of imports from USA. However, the actual implementation was left in abeyance and deferred several times over a period of one year hoping that a resolve would be made through negotiations. The trade row heightened further with the abrogation of GSP. India responded with retaliation by imposing high tariff on 28 items of imports from USA on June 15, 2019.
The jumble of actions for retaliations and counter actions raised the ante of a grim situations between the two countries. So much so that Trump jeered at India for imposing high tariff and tweeted the hike as “Unacceptable” two days before the summit.
Nevertheless, his animosity quelled when both leaders met for discussion on the sideline of G-20 summit and called for a temporary truce. Both agreed for readjustment of tariffs at the official level through dialogue. To the surprise of many, Mr Trump refrained from pressing for withdrawal of high tariff.
This demonstrated Trump’s anger muted, which might have been influenced by Modi’s persuasive ventilation of India’s stand point. Ms. Ivanka Trump, White House Adviser and daughter of Trump, exulted the dialogue “productive”, even though she believed “India a critical ally”.
In the case of banning of Huawai 5G technology, India remained non-committed to toe the line of USA. India pursued USA the need for 5G Technology for the country. According to Foreign Secretary Vijay Ghokle, Mr Modi might have convinced Trump that 5G Technology is need of the hour. This sent a message that India resisted Trump’s pressure tactic.
On the sanction against oil purchases from Iran, Mr Modi was assertive for stability in gulf region, on the behest of its energy concern. India largely depends on imported crude oil (roughly 90 percent) and Iran is a big supplier. It accounts for 10 percent of the total crude oil imported. Besides, the Chabbar Port engages Iran a strategic partner for India in transshipment of goods to Central Asia. It helped the country by-passing troubled trodden Pakistan and Afghanistan. According to Mr. Vijay Ghokle, Trump told Modi that the USA was trying its best to ensure stability in the region. This re-affirms Trump’s vying Modi’s friendship by toeing on India’s request for stability in the region.
Another surprise from the summit meet was that Trump did not raise the issue on purchase of S-400 from Russia (anti-aircraft missiles), even though concerns loomed large after India rejected US Secretary of State Mike Pompeo’s veiled threat during the meeting with Indian Foreign Minister S. Jaishankar.
In the post summit, both Mr Modi and Mr Trump were exuberant over the success of talks. Mr Modi tweeted “we discussed ways to leverage the power of technology, improve defence and security ties as well as issues relating to trade. India stands committed to further deepen economic and cultural relation with USA”. An impression unleashed by India’s Foreign Secretary Vijay Ghokle , was that the bullying tactic by Trump did not work on Modi. Echoing a similar impression, Trump said, “We have become great friends and our countries have never been closer. I can say with surety. We will work together in many ways including military.”
Therefore, as against Trump’s tweet of bullying on India’s hike in tariffs before the meet, the talks in the summit for setting a tone for resolving the issues through dialogues instead of retaliation, demonstrate that dialogue turned a game changer for US- India relations.
The White House tweeted “Meeting just concluded. President @realDonald Trump and Prime Minister @Narendra Modi of India shared ideas to reduce America’s trade deficit, enhance defence cooperation and safeguard peace and stability throughout Indian Ocean and Pacific Region.”
In global power game, India is far behind the USA. It is more significant to India economically in trade and investment and than vice–versa. The USA is the biggest export destination for India and a major foreign investor. The USA is the major turf for employment generation, since the USA is the biggest importer of labour intensive products from India. To this end, any retaliation by India warrants a major dent to its exports and economy.
From the point of national spirit, retaliation is a good challenge. But, national spirit cannot play a pivotal role in cross-border trade, when the challengers are not on equal foot in terms of trade muscles.
The USA accounts for 16 percent of India’s merchandise exports and 50 percent of IT software and BPO service exports. In contrast, India accounts for merely 2 percent of USA exports. Despite this, the USA incurred a trade deficit with India.
The trade deficit provoked Trump to accuse countries for indulging in unfair trade practices. He alleged that while the exporting nations treated the USA unfairly and reaped the benefits of American open and large market, these countries were reluctant to reciprocate by opening their own market on equal terms.
India will dig its own grave if it indulges in retaliation. Exports of ready-made garments and gems and jewelry (particularly diamond and precious stones) are the cases in point. Both these items account for one-sixth of India’s total exports. And, the USA is the biggest importer of these two items from India. Further, a big labour force is employed in these two export oriented industries. To this end, the USA’s counter retaliation will send the industries into a tailspin, causing a huge export loss and unemployment.
Given the unbalanced power of the two countries, Trump and Modi seeking to resolve the trade conflicts through dialogue instead of reciprocal retaliation, augers well for an uptick in USA – India relations.
Views expressed are personal