By Subrata Majumder
The India-US Joint Statement of February 25 said that both Prime Minister Narendra Modi and USA President Donald Trump vowed to strengthen their Global Strategic Partnership by deepening defence and security cooperation, through maritime and space domain exercises, sharing information, exchanging military liaison and so on. Focus was given to make Indo-Pacific region a free, open, inclusive and peaceful area.
What the Joint Statement missed was any assertion for settling the trade disputes and road map for enhancing trade and investment.
Analysts decode Trump’s unique mindset towards trade is his obsession with trade balance, which he considers a major headwind to America First policy. It was not China only, which holds highest trade deficit with America (nearly 47 percent in 2017), but even the nation like India which runs a fraction of overall trade deficit, fell prey to Trump anger. He is plagued by dismissive attitude that countries exporting more to USA than buying less in return are challenging USA. India is the tenth biggest trading partner of America and holds trade deficit of US $ 17billion, out of total trade deficit of US $ 796 billion in 2017.
To nail it, his major salvo has been high tariff on imports, irrespective of the volume of trade deficits due to nations, followed by exit from trade block. Eventually, China – the biggest creator of trade deficit with USA – fell prey to Trump’s high tariff weapon and USA exited from TPP, which he considered a potential disaster to America.
Considering India a vast market and propitious to America First, US trade officials tried to force open for exports of farm products, medical devices and dairy products. But, it remains a far cry. India reverted back to protectionism in the wake of downturn in growth. Budget 2020-21 is a case in point.
Analysts observed that Trump’s trade balance obsession exacerbated US -India trade dynamism. Trade between USA and India increased. Paradoxically, trade tensions also intensified with India’s trade surplus causing dent to US domestic market.
There are eight ongoing trade issues between USA and India, which jeopardized Trump’s new look to trade diplomacy. There are three issues which oscillate 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. It was never heightened as a major challenge to USA’s global trade outreach.
In pursuance to high tariff mechanism, Trump administration imposed new tariffs on imports of steel and aluminium from a dozen countries, including India.
To delete nations from trade concessions on the entitlement of developing nations, Trump administration removed India from GSP scheme – special trade treatment for developing nations. India crossed benchmark of US $ 1000 per capita income for 3 years in row.
America finds India a market for agricultural products. USA exports less agricultural products to India (US$ 1.5 billion in 2018) than imports more from India (US $ 2.7 billion in 2018). As a part of tariff retaliation, India imposed high tariff on several agricultural products from USA indiscriminately like in-shell walnut, apple chicken peas, dry peas.
Besides, 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. 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 in the zone of high tariff, even though it is significant for healthcare services. Concern intensifies 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.
Amidst these contentious issues, which barred US- India to arrive at any trade deal, Trump’s visit was important from the perspectives of India’s new challenge to upturn its growth on the platform of export. Export has now been considered the driven factor to gear up the growth in Modi 2 period. India targets US$ 5 trillion economy by 2024-25. To achieve this, India targeted its export at US $ 660 billion by 2024-25.
Given the fact that USA emerged the biggest export destination, which account for one-sixth of India’s total export, including a higher growth rate 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 through process of intensive negotiations and re-adjustment, letting both nations at win-win situations.
FTA deal with USA should not be negated. Former US Ambassador Kenith Juster mulled for an FTA between the two countries. This can act a potential drive to dwarf Trump’s obsession of trade balance.
Oil import is a case in point. Since 2017, USA has emerged a major supplier of crude oil to India. India’s crude oil import from USA leaped to double in 2018-19 from 2017-18. It forayed in the total import bill of USA, sharing 20 percent of total imports from USA in 2018-19, compared to 15 percent in 2017-18. Oil is vulnerable to India’s economy. It is also a base for export, such as refinery products. Over 90 percent of crude requirement is imported.