From UPSC perspective, the following things are important :
Prelims level : Not much.
Mains level : Paper 3- Need for India to take a look at its current trade policy.
Trump has made India’s trade headache more acute. But he has also opened up opportunities.
Political polarisation in both countries
- Impeachment attempt: The Democrats in the US have struggled to oust Trump from the White House and rarely find anything they can agree with their President on.
- The deeper political divide in India: While ousting Narendra Modi through a legal process of impeachment is not an option in India, the political divide is even deeper.
- No consensus on foreign policy
- Under Trump, consensus on foreign policy in Washington has broken down.
- In Delhi, the Opposition has never been willing to acknowledge the diplomatic successes of the government.
- But the usually bipartisan support for foreign policy in the strategic community has eroded.
- Many leading voices of the establishment who have a long and distinguished service have become major critics of foreign policy.
Comparison of India’s trade with the US and China
- Trade with the US: In 1995, total two-way trade, including goods and services, between India and the US was $11 billion.
- In 2018, it crossed $140 billion.
- It is reported to be around $150 billion in 2019.
- In trade with the US, India enjoys a surplus of nearly $23 billion.
- A 14-fold increase in trade turnover in 25 years is certainly not something to sneer at.
- Can India and the US do better on trade? Yes, of course.
- Only a few years ago, the two sides were looking at an annual trade target of $500 billion. That looks rather ambitious amidst the current disputes
- Trade with China: India’s China trade too has risen, even more rapidly.
- From a couple of hundred million dollars in the mid-1990s to nearly $90 billion in 2019.
- India has a deficit of nearly $57 billion with China.
Trade disputes between India-US
- Trade has long been a contentious issue between Delhi and Washington.
- There had been enduring tension since the late 1980s between the US demand for-
- Greater market access.
- Intellectual property protection.
- And a host of other demands and India’s own cautious approach to economic liberalisation.
- Rise in pressure under Trump administration: All recent US administrations have applied continuous pressure on India for trade agreements.
- The pressure has significantly risen under President Trump.
- Trade dispute at the centre of the relationship: If his predecessors were willing to cut some slack for India by citing larger political and strategic considerations in the bilateral ties, Trump has put trade disputes at the front and centre of the relationship.
- Officials in the Department of Commerce and the US Trade Representative’s office have adopted extremely aggressive tactics in the negotiation with India.
- Result of a radical reorientation of US trade policy: Trump has undertaken a radical reorientation of US trade policy.
- For Trump, this is a matter of long-standing ideological conviction as well as a political convenience.
- He has bet that the anti-free-trade White working classes in the American rust belt are the key to his re-election.
- No option but to deal with it: Given America’s pole position in the global trading system, you have no option but to deal with it.
- Trump is getting away with his demand for the restructuring of trade relations with key economic partners.
- He has renegotiated the NAFTA with neighbours Canada and Mexico and has compelled China to start reducing the massive trade deficit with the US.
- The difference in India and China’s response to the US: In response to Trump’s pressure, Xi reaffirmed his commitment to economic globalisation and domestic liberalisation and wooed American investors with even greater vigour than before.
- India embracing protectionism: India appears to be sending the opposite signal — of a definitive drift towards protectionism. India’s trade troubles are certainly not limited to the engagement with the US.
Problem with India’s trade policies
- India walking away from RCEP: Delhi walked away at the very last minute from signing the RCEP agreement last year to deep disappointment among its partners including the ASEAN, Australia, Japan and New Zealand.
- The trade deficit with China: One of the main arguments cited by India was the massive trade deficit with China and the potential danger of it widening further under RCEP.
- Failure in negotiations with the EU: The European Union is reluctant so far to restart trade negotiations that ended in great frustration for Brussels some years ago.
- No deal with Australia and New Zealand: Australia and New Zealand have given up.
- Neighbours complaint: India’s immediate neighbours complain that India’s rhetoric on connectivity and regionalism is matched by the multiple non-tariff barriers that continue to constrain commerce across the South Asian frontiers.
- Why so many deals are pending? It is certainly probable, statistically, one in a million, that the fault lies, always, with India’s partners. But one would think there might be a real problem with Delhi’s own trade policies.
- New opportunity: Trump has certainly made India’s trade headache more acute. But he has also opened up opportunities.
- His trade war on China has put pressure on the global supply chains centred around China.
- India not the beneficiary of the US-China trade war: Many companies are moving their production out of China, but only a few are turning towards India.
- While Delhi has talked the talk on taking advantage of the US-China trade war, it is yet to get its act together.
- No opposition against protectionism at home: What makes Delhi’s devaluation of trade as a key instrument of economic growth potentially irreversible is the fact that there is little domestic political opposition to it.
- Time to take a hard look at trade policy: For now, though, India’s partnership with the US might not only survive the current trade tensions but advance during Trump’s visit.
- There is so much happening elsewhere in the relationship — especially in the defence and security domain.
- But the time has come for Delhi to take a hard look at its current trade policy that threatens to undermine India’s regional and international prospects.