US President Donald Trump plans to end preferential trade treatment for India, saying the Indian government “has not assured the United States that it will provide equitable and reasonable access to the market of India.”
Although the world had been expecting new global trade policy moves by the US, Trump’s decision to take measures against India has surprised many. Such move tends to be taken as fishing in troubled waters when the US is expected to play a mediating role at a time India and Pakistan are still grappling with the tensions triggered by the Pulwama attack.
Trump’s selective trade measures against India will inevitably jeopardize strategic mutual trust between Washington and New Delhi.
People may argue that India’s exported goods to the US under preferential trade framework is only worth $5.6 billion and won’t significantly transform their trade relations. But the impact is fundamental.
The move vindicates pundits who said India will be the next target of the US trade war.
In fact, there were early signs. At the end of February 2018, the Trump administration began to deliberate on tariff reforms and in March announced levies on imported steel and aluminum products.
New Delhi believes that India and the US are natural allies and it does not pose any “security threat” to Washington by virtue of selling it a small quantity of steel and aluminum worth $240 million. However, India was not one of the countries exempted from tariffs as announced in May.
India found itself on the US Treasury’s currency watch list in April 2018. Although observers believe that India does not risk being labeled a currency manipulator and need not worry about massive US sanctions in the short term, frictions between the two are bound to increase under the increasingly radical trade outlook of the US.
It would be safe to say that the objectives and the road Trump administration’s global trade policy will take are clear. The administration has been relentlessly promoting protectionism since 2018. The US requires its competitors, as well as its allies like EU and Japan, and its strategic partners like India, to make compromises even when it is trying to close its markets.
The fundamental divergence between India and the US is on the approach to global trade. As an emerging economy, India needs to protect its infant industries involved in global trade and enter markets in developed countries with its intrinsic advantage of lower labor cost. However, right now Trump believes that the US has no obligation to assist developing countries and adopts a winner-takes-all approach in international trade.
It will put Indian government into an even more awkward position than China in trade disputes with the US. Unlike in China, India’s manufacturing sector is still in its incipient stages and needs strong government incentives. The “Make in India” program envisioned by Prime Minister Narendra Modi has just started, and some infant industries are unable to withstand risks. India feels that it may exploit some gains from the China-US trade war, but Trump’s forthcoming moves will deepen New Delhi’s skepticism on taking ties with the US further.
Actually, since Trump took office, US-India relations have remained healthy. After Modi visited the US in June 2017, bilateral ties have been on a fast track. In November that year, Trump floated the “Indo-Pacific” concept. He defined China as a rival power of the US for the first time in the National Security Strategy he delivered one month later, and raised India’s position as a “stronger strategic and defense partner” in the US’ overall strategy. This was a major diplomatic gain for India.
The Trump administration promised to support India in its quest to become a leading global power. Washington said it would prioritize strategic and defense cooperation with New Delhi. But going by the situation, the Trump administration has as a matter of fact introduced an India policy de-linking security cooperation from trade preferences.
Observers may find that India’s rapprochement with China since 2018 is a wise move. It enables India to be flexible in major power diplomacy , which otherwise would be confined to the US. When Trump’s threats are converted to policies, India is bound to respond. Let’s see what the direction of India-US relations will be.