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Trump’s Visit Is Not About Trade Alone – Analysis

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Despite disagreements over trade, relations between the US and India are poised for further consolidation. Defence ties continue to remain strong.

By Pinak Ranjan Chakravarty

Donald John Trump’s visit to India, his first, and the seventh by an American President, has got mired in the debate on bilateral trade disputes. The POTUS has publicly named India as a “tariff king” and accused her of treating America “unfairly” on trade. To be fair, Trump has also said upbeat things about his visit and friendship with PM Narendra Modi. Trump’s ‘America First’ policy has targeted friends and foes alike. The US kicked off the recent round of trade battles by imposing higher tariffs on Indian steel and aluminium exports in 2018. The enhanced tariffs were aimed primarily at China, but India and others were also impacted. India reacted with higher retaliatory tariffs on some American exports but withheld implementation, till the next big step when the US withdrew GSP benefits for India, affecting $6 billion-plus Indian exports. India reacted by implementing higher tariffs on certain imports that hit mainly American agricultural exports to India.

The more recent unilateral move by the USTR, to remove India’s status as a developing country in the WTO, exposes us to imposition of countervailing duties on exports, deemed to have received subsidies. These adversely impact India’s trade with the US. Clearly, the USTR is targeting India as an unfair trading partner, though the US trade imbalance with us is way down on its list of nations with whom it has imbalances. India has more than compensated the US by diverting energy imports away from Iran. Oil and gas imports from the US have risen sharply. From India’s point of view, these have moderated the trade imbalance.

Bilateral defence ties, however, remain upbeat. India has upped its procurement of high-technology defence equipment, amounting to $18 billion or more in the last decade. The US believes India’s threat perception and policy of diversification of sources of procurement of defence hardware will make it turn towards America as a defence partner. The Trump administration has approved and notified the Congress about the sale of IADWS (Integrated Air Defence Weapon System), valued at $1.9 billion, to upgrade India’s air defence network. China’s aggressive posture in India’s neighbourhood and the South China Sea is a compelling factor for the growing India-US defence partnership in the Indo-Pacific region.

Trump comes to India politically buoyant after the impeachment proceedings. The Republican-controlled US Senate acquitted him after the Democratic-controlled House of Representatives had voted in favour of impeachment earlier. There was a sole Republican dissenter in the Senate and there is no Republican challenger in sight for the Presidential election. This win for Trump is likely to give a boost to his re-election campaign this year. The ‘Namaste Trump’ public reception at Gujarat’s Motera stadium is Modi’s reciprocal gesture for the ‘Howdy Modi’ event in the US. This event will add to his vote base among the four million strong Indian-origin community in the US. At one level, Modi and Trump are reinforcing each other politically.

The US State of the Union Address witnessed an unexpected televised reciprocal snubbing by Trump and House Speaker Nancy Pelosi. Despite the grandstanding, political bitterness and ambush diplomacy by Trump, his economic approval ratings are above 60%, with his country’s economy looking up, unemployment declining, curbs on immigration and incomes on the rise. His personal approval rating was around 50% in January this year. His muscular handling of trade disputes with China has led to a partial trade deal and the promise of a reduction in the adverse trade balance.

The Trump administration has articulated the view that adverse trade imbalances are a symptom of a malaise in global trade relations. American workers who have lost manufacturing jobs to China are backing Trump, who has claimed that the US has lost 4.2 million manufacturing jobs over the last quarter century. Walking out of the mega-Asian Trans-Pacific Partnership, dumping the Trans-Atlantic Trade and Investment Partnership with Europe and re-negotiating the North American Free Trade Agreement with Canada and Mexico have been his leading trade policy initiatives. Trump believes he has got away with dumping various international agreements (Paris accord on climate change, moving the US Embassy to Jerusalem), giving his self-confidence a huge boost.

The other main grouse of Trump is that America carries a disproportionately skewed burden of the international security order that benefits all countries. This has led to the US demanding greater financial burden sharing by European members of NATO, as well as key allies Japan and Republic of Korea. Trump’s ‘America First’ policy is popular with the US people who believe the rest of the world has taken advantage of, hitherto, liberal American values.  Be that as it may, bilateral ties are poised for further consolidation, as India prepares to absorb some of the blows on issues like opening of the Indian market for US agricultural, poultry and dairy products, a restrictive visa regime, price controls on medical devices and products, mediation offers on Jammu and Kashmir, religious rights, data localisation and e-commerce.

Clearly, the visit will be geared towards imparting a “feel-good” factor. The Taj Mahal visit and the mandatory photo with Melania Trump will receive wide publicity. Jared Kushner, Trump’s powerful son-in-law, and daughter Ivanka, both close advisers, are also accompanying the President. There will be no trade deal during the visit but a limited deal is likely to be worked out and announced before the US Presidential election. India-US ties will have to grapple with trade issues for the next five years, if Trump is re-elected. The two largest democracies will continue to spar over many issues, given the argumentative politics in both countries. The visit, high on optics, will mask the head-butting on trade issues that will inevitably carry on behind the scenes but may be on hold during the visit.

China’s aggressive posture in India’s neighbourhood and the South China Sea is a compelling factor for the growing India-US defence partnership in the Indo-Pacific region. There is also a growing strategic overlapping of interests towards China’s BRI and predatory trade practices


This article originally appeared in The New Indian Express.

Observer Research Foundation

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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