Note4Students

Mains Paper 2: International relations | Effect of policies and politics of developed and developing countries on India’s interests, Indian Diaspora.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the India-US trade relations.

Mains level: The news-card analyses the issues and concerns w.r.t India-US trade relations, in a brief manner.

Context

• The US commerce secretary will be visiting India this week amid the reports of trade tensions between the two countries.

Opportunity to step back from confrontation

• The US might withdraw India’s trade benefits under the so-called Generalised System of Preferences that Delhi has enjoyed since the mid-1970s.
• This week’s dialogue must be seen as an opportunity to step back from confrontation and take a more strategic approach to resolving the current differences over a large number of issues.
• They include market access, reciprocity in tariffs, trade deficit, predictable investment rules and data localisation to mention a few.
• Over the last two decades, Delhi and Washington have dealt with and resolved far more complex issues.

Issues and Concerns

1. To recognise the value of the trade relationship between the two countries and its huge potential

• There was a time, less than two decades ago, when “flat as a chapati” was the preferred label for US-India trade relations.
• Since then, the annual two-way trade has grown rapidly to touch nearly $130 billion last year (including trade and services).
• For India, the US is probably the most important trade partner today and will remain so for a long time.
• For Washington, the size of the trade volume with India is quite low in comparison with its other key partners like Canada, Mexico, the European Union, Japan and China.
• But the potential remains high as India emerges as the world’s third-largest economy.
• It should, therefore, be the highest political priority for India and the US to turn this trade relationship into a deeper and more sustainable one.

2. Both countries need to be sensitive to the domestic political considerations

• As India enters the election mode, this is perhaps the worst possible moment for the US to take actions like the withdrawal of GSP benefits.
• The volume of Indian exports involved is quite small, but the political impact could be way out of proportion.
• On its part, Delhi needs to pay greater attention to the profoundly altered environment in Washington on trade related issues.

“Free trade” to “fair trade”

• Trump has begun to turn America, for long, the champion of “free trade”, into an advocate of “fair trade”.
• Trump has convinced himself that the rest of the world has taken advantage of America’s open market.
• He is now ready to bring the whole house down if the rest of the world does not address his grievances.
• India must bet Trump’s concerns about trade outlast his stint as US president.

3. Turning the two “estranged democracies” into “indispensable strategic partners”

• It is quite easy to forget the personal role of the Indian prime minister and the US president in turning the two “estranged democracies” into “indispensable strategic partners” in the 21st century.
• In India, successive Prime Ministers Atal Bihari Vajpayee, Manmohan Singh and Narendra Modi chose to defy conventional political and bureaucratic wisdom to advance the country’s relationship with the US.
• Washington has little reason to politically embarrass Prime Minister Modi — who has moved the security and political relationship beyond any one’s imagination — on trade issues just before a tough general election.
• Delhi, on the other hand, should appreciate the great political value of a trade deal with India for Trump and the importance of having the White House on India’s side.

Never stop negotiating

• Finally, the secret to successful engagement with the US involves two simple propositions — never stop negotiating and keep making deals small or big.
• India often can’t close a negotiation because it’s opening bid tends to remain the final position.
• Americans, on the other hand, are always open to splitting the difference, finding a compromise and moving on.

Way Forward

• It was with the ability to give and take, while keeping the larger and long-term interests in mind, that India and the US were able to overcome the multiple problems in the nuclear and defence negotiations during the last two decades.
• Continuous forward movement however slow and incremental is critical.
• Unlike security issues, trade is not a zero-sum-game and should be more amenable to deal-making.
• Given the return of geopolitical confrontation and the unfolding rearrangement of the global trading order, “doing nothing” is not an option for Delhi.