US-India Trade War - Frank Islam
US-India Trade War - Frank Islam

Frank Islam (Washington): During Prime Minister Narendra Modi’s visit to the United States (US) in September, in which President Donald Trump made a cameo appearance at the “Howdy Modi” event in Houston, the two leaders were expected to announce a trade deal. But, the two sides could not agree on the contours of such a deal before that landmark trip ended.

Media accounts suggested that, over subsequent weeks, New Delhi and Washington appeared to be near a trade deal several times. Nonetheless, as 2019 draws to a close, India and the US are still without a deal.

Two recent bilateral visits give hope, however, that the two countries might reach an agreement soon. In mid-November, India’s commerce and industries minister Piyush Goyal visited Washington to hold discussions with the US Trade Representative (USTR), Robert Lighthizer. And, subsequently, a USTR delegation was in India to continue the talks. Reports say that the two sides are nearing a breakthrough. At a time of general economic slowdown, a trade deal with the US in the waning days of the year would end the economic news for India on a high note.

It is worth noting that since India opened up its economy, the US-India bilateral trade has grown at a spectacular rate. The trade-in goods increased from $5 billion in 1991 to nearly $88 billion last year. In 2018, India was America’s ninth-largest goods export market. When trade in services is also included in the mix, the volume of bilateral trade last year was $142 billion.

The concerns about market access and intellectual property rights have never become wedge issues in the US, except during presidential election cycles. For example, President George W Bush imposed tariffs on Indian steel to woo voters in the critical battleground state of Ohio, ahead of his 2004 campaign. Not to be outdone, his challenger Senator John F Kerry vigorously went after the Indian outsourcing industry.

President Donald Trump has stated that he believes trade wars are good for the US economy. While trade disputes with Canada, Mexico, and China have attracted most of the headlines, Trump has opened new battlefronts with a number of countries, including India.

This is because Trump is very sensitive about the loss suffered by farmers in the US midwest after China imposed huge tariffs on American agribusiness products as a retaliatory measure. With the midwest farmers critical to Trump’s re-election prospects, the White House has spent tens of billions of dollars in subsidy to those farmers to offset their losses. Getting concessions on agricultural products in a deal with India would resonate with this targeted constituency.

First, it will help change the narrative about the economy. Most rating agencies have downgraded their growth projections for India for next year. A trade deal would reassure the US and other foreign investors about India’s future economic prospects.

Second, the US-China trade war has forced many American companies to explore alternative options for manufacturing. For India to take advantage of this vacuum, it has to establish a more predictable trade environment.

It is in India’s interest to conclude the ongoing trade talks with the US productively. That does not mean giving away the store, but it does mean being flexible and keeping the larger economic story in mind.

As the axiom goes — and contrary to what the US President believes or says — there are no winners in a trade war. Similarly, a sound trade agreement has no losers.