By Kashish Parpiani
Speaking at the US-India Strategic Partnership Forum last month, Union Commerce and Industry Minister Piyush Goyal deemed a partial US-India trade deal to be imminent, as the “broad contours of what we are going to announce” have been resolved.
This development came a fortnight after President Donald Trump announced from the Oval Office, that the US and China are set to ink a “substantial phase one” of a trade deal. This followed other renegotiations like, the announced US-Japan Trade Agreement, the United States-Mexico-Canada Agreement (USMCA), and the US-Korea Free Trade Agreement (KORUS FTA).
Going into 2020, Trump is sure to tout these developments as vindication of his conservative nationalist approach to US foreign policy – which dictates America to settle scores on its largesse of underwriting globalisation across the globe. In the case of India, the partial deal would take some pressure off contentious bilateral trade issues that divide the US and India. On some long-standing issues on India’s tariff/non-tariff barriers, however, New Delhi is expected to be on the receiving end of Trump’s approach with continued trade negotiations.
Thus understanding the Trump administration’s hard-nosed ‘America First’ quest to recalibrate US trade relationships, the relevance of China in Trump’s run for the White House hones crucial insights.
The China factor in the populist takeover of the Republican Party
Analysis, which deem the 2016 US presidential election to have been dominated by a political movement around white identity politics on the issue of immigration are accurate. The means to that end, however, was the Trump campaign’s successful populist takeover of the Republican Party – by linking the stalemate on immigration reform to the American political bipartisanship on free trade.
In galvanising the working class voters on these issues, the Trump campaign turned the ire against the ruling Washington political establishment or the “swamp” – as Trump would often call it. In a recent interview, Steve Bannon – Trump’s Campaign Manager and later his Chief Strategist in the White House, explained the US lawmakers’ interest in not pursuing comprehensive immigration reform.
Driven by American corporate interests to compete against foreign markets via the mechanism of free trade, lax immigration has been seen to “flood the zone” against local workforce to “keep wages down for higher margins” for US manufacturers.
To substantiate this claim, Trump would thus often purport the United States to have lost 4.2 million manufacturing jobs and amounted $15 trillion in trade deficits over the last quarter century. A considerable share of that American loss would be attributed to China’s rise. Explicitly, Trump would even colourfully allege China to have “raped” the US economy.
In thus construing American fallacies on immigration and trade as being mutually reinforcing, the Trump campaign alleged the Washington elites’ preference for a “managed decline” in the face of a rising China.
The American elite and the US’ “managed decline” against China’s rise
Pointing to Chinese unfair trade practises, at his rallies, Trump expressed horror at the American trade deficit with China of over $350 billion. Trump would however clarify that the blame did not lay on China. In turn, Trump would give China “great credit” for “being able to take advantage of another country for the benefit of its citizens.” Trump instead lay the blame on past Democratic and Republican administrations “for allowing this out-of-control trade deficit to take place and to grow.”
Thus, the Trump campaign in its intent to stir up a populist movement implied a causation. The US’ “managed decline” against China – at the “unacceptable outcomes to average citizens” in terms of job losses in the American mid-west – was to be “inextricably linked to the shipping of its [US] industry base to China”.
Trumpian hyperbole aside, there is some credence to the American political class being culpable. For instance, although the Bill Clinton and George W Bush administrations imposed some anti-dumping duties on imports from China, they failed to address China keeping the exchange rate of its currency at artificially low levels, exercising overt control of state-owned enterprises, necessitating transfer of sensitive technologies from foreign investors, and allocating subsidies to incentivise exports. Despite the “increasing signs of mercantilism” on the part of the Chinese, the US response was largely meek as American multinational companies feared losing their lucrative access to China’s massive market.
In this context, the Trump administration raising the spectre of a trade war with China signifies conservative nationalism’s attempt to troubleshoot the skewed US-China trade differential.
Whereas, with nascent partners like India, the ‘America First’ worldview dictates pre-empting the repetition of the American ruling class’ misstep of China’s assimilation into the global trading system – without necessitating commensurate economic reforms.
American aversion to the Chinese sleight of hand in trade negotiations with India
In the ongoing trade talks with the US, India has sought to temper divergences by addressing the US-India trade deficit ($25.2 billion in 2018) – even though it is less than a mere tenth of the US-China trade deficit ($378.6 billion in 2018). On some long-standing divergences like India’s price caps on US pharmaceutical imports, however, New Delhi has underscored its position as preventing exorbitant pricing from hitting the Indian consumer – which mostly constitutes of a middle-income base as per standards of a developing economy. As these caps lower the price of imported US coronary stents and knee implants “by 85% and 65% respectively”, Washington has insisted on a trade margin at the first point of sale, not at landed cost.
The current US aversion to accepting India’s line of argument stemming from limitations posed by its developing economy status stems from its trade experience with China. Led by American corporate desire to tap into China’s vast market potential ripe with a rising consumer base, the Bush administration spurred China’s accession to the World Trade Organisation (WTO). In exchange, China had agreed to gradually open its markets, cease state-led management of its economy as it developed. That promise stood in-line with American interests of penetrating China’s market, and assuming that “economic liberalization would put Beijing on a gradual path toward true free enterprise” – and possibly even toward increased democratic reform. Instead, a Chinese sleight of hand encompassed doubling down on its control over state-owned enterprises, currency manipulation, and forced technological transfers from foreign investors. Overtime, this essentially gave China’s indigenous producers and innovators “a leg up in global markets that went beyond the normal rough and tumble of global capitalism”, and led to the eastward shift of the world’s manufacturing base.
Moreover, the US misstep of largely focusing on the market potential of China has, overtime also fed its challenge to American primacy. For instance, in addition to the micro-level effect of gutting America’s manufacturing base, Chinese GDP today is the second-largest economy of the world, nearly 60 percent of US GDP. China’s economic rise has also translated into a massive security maximisation programme to now have its defence spending second only to the US itself. Finally, China has emerged as one of the largest holders of American debt worth over $1 trillion.
Hence, in the case of trade negotiations with India, the US has under-prioritised its need to penetrate the 1.3 billion people-strong Indian market. Instead, the Trump administration has sought to weaken India’s justification for barriers owing to its developing economy status and by extension coax significant economic reforms.
For instance, on India’s export subsidies to indigenous producers of steel, pharmaceuticals, information technology equipment, textiles, etc., the Trump administration last year sought WTO intervention. Whereas, India has long claimed that it stands “exempted from prohibition on export subsidies under the special and differential treatment provisions” accorded to developing economies under the WTO’s Agreement on Subsidies & Countervailing Measures (SCM).
Earlier this month, the WTO dispute settlement panel ruled against India, by noting its per capita gross national product to have crossed $1,000 per annum. In line with the American argument, the panel cited Article 3.1 of the WTO’s SCM agreement, which essentially states, “all developing countries with gross per capita of $1,000 per annum for three consecutive years are required to stop all export incentives.”
Similarly, earlier this year, the US revoked India’s designation as a ‘beneficiary developing country’ under the Generalised System of Preferences (GSP) programme. As per 2017 data, India was the largest beneficiary of the programme, with exports to the US worth $5.7 billion enjoying duty free access. The rationale behind the move was based on the Trump administration’s view of India “no longer” falling under “the statutory eligibility criteria” of being a developing economy.
Thus, American conservative nationalism – which defines itself as a response to the US having been deceived by China’s trade and economic practices, does not spare India of full compliance on free trade despite India being a developing country.