Economic Highlights

New Delhi, 24 February 2020\

Indo-US Trade

TRUMP EYES GAINS, INDIA BRAND IMAGE

By Shivaji Sarkar

Ahead of a re-election, normally a President needs massive support at home. However, United States President Donald Trump looks overseas and eyes India for it to boost his economy and his own image, in fact for a massive makeover at home. India is being projected bigger than it is and Trump seeks to show his people that a tie up with New Delhi would increase jobs and the favouring trade deals may open up doors to an El Dorado.

This is a good branding for India as the largest economy projects a rising one larger than life. It helps India in its international dealing as well as march towards a $5 trillion economy. That, however, doesn’t seem to be the aim of Trump. He wants to secure his position in domestic politics.

Trump visits with the aim to “further strengthen the US-India strategic partnership”. This is at a time when the Chinese economy is on a downward trajectory. The Sino-US trade deal, after a virtual trade war, is a non-starter. The US needs a massive economic raise and Trump expects India to give him an advantage.

His subtle projection to his countrymen is of a macho that gives less and takes more. His imagery in different Indian cities is expected to create popularity for a vote-catching mission. That is a gain for India and Prime Minister Narendra Modi’s diplomacy.

Overall, Trump has done quite a lot for his farmers, industry and revenue collection with deals with India since 2018. He has projected India as a developed country and has been slicing out more benefits for the US economy as a sagging US economy hit by trade wars launched by it needs a bit of tonic.

Somehow the US domestic industry wanted more concessions from India and Trump has been able to show he has been able to have it. Indian steel and aluminium that is of high quality and acceptable by the US manufacturers in many sectors was gifted with additional duties. It helps the US gain higher revenues and a semblance of ruse that he is not liberal with his friend Modi.

In 2017, India imported record 7.8 million 40-pound boxes of Washington state apple. However, India had imported far fewer boxes of the 2018 crop. And while Washington state had shipped about 2.6 million boxes to India, the latter has quietly raised duties.

Similar is the case with US almonds. Trump administration announced mid-2019 removal of India from eligibility for key trade privileges under the US generalized system of preference (GSP). It imposes cost on India for benefit to the US growers and traders. India behaved the same way and imposed tariffs on 28 US products, including US shelled almonds in June 2019 by 20 per cent and non-shelled almonds by 17 per cent. The new duties in some cases are as high as 70 per cent to offset the US tax rise on steel and aluminium.

The US-India bilateral trade increased sevenfold since 2001 in 2018 to $142 billion, as per US figures. In 1995, total two-way trade was $11 billion. It remains a massive trade that has increased 14 times since 1995. India’s trade with China, though not to the liking of the US, too has increased from a few hundred million dollars in 1995 to nearly $ 90 billion in 2019.

The perception that Trump is projecting India per se is not wrong. India is growing but still definitely does not match the per capita income of a developed country. So the US considering India as an equal developed country may suit its domestic narrative not the reality. Imposing costs on Indian exports may be real home politics but is far from reality. It has hit a segment of Indian low cost exports, worth around $5.6 billion.

So Trump comes seeking more sops. He could demand doing away with duty on US information and communication technology goods, market access to dairy products, duty cuts on Harley Davidson motorbikes, apples and almonds. All of it is critical for his industry and farmer friends as he has to make up for the losses he has with China. Who else could he depend than a friend like India?

Trade is a long contentious issue between the two countries. Since the 1980s, the US has been demanding greater market access and intellectual property protection. The access to Pepsico and Coca Cola to the Indian market was its result by both Indira Gandhi and Rajiv Gandhi governments much to a political hullabaloo in India. Interestingly, with each such spat trade has increased between the US and India.

Trump has significantly increased that pressure. According to the US Trade Representative (USTR), India is a member of G-20 with more than 0.5 per cent of the world’s trade share. The World Bank classifies countries above this threshold as developed and as “high income” economies. This puts India in the category of a developed country. India may not like it as it has to struggle through a difficult phase.

But the US has the power to ignore such concerns. It is restructuring trade relations with key economic partners. Trump has renegotiated NAFTA with Canada and Mexico. He has compelled China to cut massive trade deficit with the US. China has had trouble negotiating $ 200 billion worth trade with the US.

Before his visit to India, he has developed relations with Taliban, US officials are asking India to change tack with Pakistan and the sanctions on Iran are a cost on India’s petroleum imports. Trump wants more.

India has recently walked away from Regional Comprehensive Economic Partnership (RCEP). The European Union remains a reluctant negotiator. Australia and New Zealand are in a wait and watch mode. India tried to have an advantage over the US-China trade war, it talked but gains are limited. Many companies are moving out of China but very few are keen to come to India.

Importantly, India needs to have a re-look at trade ties. Trump has come with offers. The US strategic presence is needed in the subcontinent. Major proposed trade deals in defence likely worth $10 billion and more would be good for both the countries despite some rise in Indian protectionism like the RCEP, which even the opposition Congress hailed.

While India needs to review its trade policy, the friendly arms extended by Trump are likely to be a new beginning at the growing relations. Spats in international trade continue and so do the intensity in business. Despite conceding gains for Trump, India would curve out a niche for itself.---INFA

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