The US-India joint statement following US President Donald Trump’s visit to India focused on strengthening US–India Global Strategic Partnership, but was elusive on a trade deal. Speculations hover on a trade deal by year-end, presumably after the US election in November 2020.
Nevertheless, the visit escalated the Trump-Modi hobnob. Trump reposed confidence in Modi’s strong leadership, keeping an eye on Indo-Pacific region. His visit opens a new window for renegotiations and re-adjustment to rule out or abate the trade irritants and strike a potential trade deal, where both nations will be a win-win situation.
In the balance sheet of trade merits, core point is who should gain more. Obviously, it is India. This is because USA is the biggest trading partner of India. Whereas , India is the tenth biggest treading partner. Hence, USA is more significant to India and not vice-versa. Further, USA is the biggest export destination and is a potential lever to enhance India’s export. Export is now pitched an important economic parameter for upturn in the economic growth in Modi 2 period. India targets US$ 5 trillion economy by 2024-25. To achieve this, India targeted export at US $ 660 billion by 2024-25.
Futurists believe the main hindrance to a trade deal is Trump’s obsession with trade balance. He considers adverse trade balance a major headwind to America First policy. It was not China only, which holds highest trade deficit with America ( nearly 47 percent in 2017) and fell prey to Trump’s anger, but also nation like India, which runs a fraction of overall trade deficit, succumb to Trump’s anguish. He is plagued by xenophobia that countries, who export more to USA than buying less in return, are challenging USA. India holds trade deficit of US $ 17 billion, out of total US trade deficit of US $796 billion in 2017.
To thwart it, his major salvo has been high tariffs on imports. The was irrespective of the volume of trade deficits incurred by a nations . Eventually, China’s large imports fell prey to Trump’s high tariff weapon. India was no exception. This evoked multiple trade disputes between USA and India , which hitherto were suppressed on the consideration that India was not a major trading partner of USA.
Analysts observed that Trump’s trade balance obsession exacerbated US -India trade dynamism. Although, trade between USA and India increased, trade tensions also intensified. One of the reasons was India’s unabated trade surplus with USA.
Against this backdrop, Trump, who is believer in overturning the adverse trade balance, leaned towards India’s vast market, considering it propitious to America First policy. US trade officials tried to force open the export market, including farm products, medical devices and dairy products, besides India’s defence purchases. But, it remains a far cry. India’s sudden penchant toward protectionism in the wake of downturn in growth scuttled the opportunity. India’s retaliation against high tariff added fuel to Trump’s anguish, alleging India overriding fair trade practices.
There are eight ongoing trade issues, which jeopardized the trade diplomacy between the two countries.
Of these, there are three issues which vacillate between trade deficit and tariff, according to Alyss Aiyer, a researcher in Council on Foreign Relation. In the past, bilateral trade deficit was never a major focal point in America and India trade diplomacy. Neither, it was heightened a major challenge to USA’s global trade outreach.
Following high tariff axe to nip trade deficit in the bud, Trump administration imposed new tariffs on imports of steel and aluminum from a dozen countries, including India.
The Trump administration removed India from GSP scheme – a special trade treatment for developing nations. This is because India crossed benchmark of US $ 1000 per capita income for 3 years in row. No other country followed suit.
America finds India a vast market for agricultural products. USA exports less agricultural products to India (US$ 1.5 billion in 2018) and imports more from India (US $ 2.7 billion in 2018). Notwithstanding, as a part of retaliation against high tariff on steel and aluminum, India imposed high tariff on several agricultural products from USA indiscriminately like in-shell walnut, apple chicken peas, dry peas
India adopted quantitative restriction on dairy products. It wanted dairy products, “ which were derived from a cow that has been fed vegetarian diets for its entire life”. Negotiations went for years. Nothing came out fruitful. The Trump administration alleged that these barriers were on religion and cultural grounds.
Intellectual property rights have been a major concern for US- India relation. Concerns abounded on piracy of software, weak patent protections, among others.
President Trump made stark protest against India’s high tariff on motorcycles, such as Harley Davidson
Medical device was put into the zone of high tariff, even though it is significant for healthcare services. Concern intensified in 2017, when India government applied price control mechanism on coronary stem and knee implants.
New frictions erupted with the personal data protection regulation, embracing data localization, data privacy and e-commerce.
Given the fact that USA is the biggest export destination, which account for one-sixth of India’s total export, including an higher rate of growth above the normal growth, USA ensures a potential destination for achieving the export target. To this end, an immediate trade deal with America is imperative
A FTA deal with USA should not be ruled out. Former US Ambassador Kenith Juster mulled for an FTA between the two countries. This can act a potential drive to dwarf Trump’s obsession for trade balance.
A surge in oil imports can be a case in point to balance the trade. Since 2017, USA has emerged a major supplier of crude oil to India, in the wake of US sanction on Iran. India’s crude oil import from USA leaped double. Eventually, it impacted trade balance. India’s trade surplus declined from US $ 21 billion in 2017-18 to US$ 16 billion in 2018-19. Oil is vulnerable to India’s economy. Over 90 percent of crude requirement is imported. It is also a springboard for export, such as exports of refinery products.
Given the changes in trade basket, with the ongoing surge in oil imports, both nations are likely to reach an amicably settled trade balance in near term. This will be pertinent to strike a potential trade deal between the two nations, probably by this year end.