Sudha Ramachandran
Fears of a full-blown trade war between the United States and India seem to have faded for the moment following last week’s meeting between President Donald Trump and Prime Minister Narendra Modi on the sidelines of the G-20 summit in Japan. Trump and Modi agreed to instruct their trade officials to meet soon to find solutions to an escalating row over tariffs that had triggered concern in both countries. It was a climbdown of sorts for Trump, who just a day before the Osaka meeting had taken to Twitter, as usual, to air his grievances. “India, for years having put very high Tariffs against the United States, just recently increased the Tariffs even further,” he wrote. “This is unacceptable and the Tariffs must be withdrawn!”
Following the G-20 meeting, the two sides will now move to the negotiating table to address the most contentious issues. This is a step forward, albeit a small one. It came on the heels of Secretary of State Mike Pompeo’s visit to New Delhi, where he held out the prospect of major U.S. investments in India. Trump followed that up in Osaka by promising India “very big things… in terms of trade, in terms of manufacturing”—without providing details.
Will the Modi government, grappling with a slowing Indian economy and keen to attract investment to revive it, take what some have called the Trump administration’s “bait” on trade and investment in return for opening up the huge Indian market to American goods?
Tensions over trade tariffs erupted last year when the Trump administration hiked tariffs on imports of aluminum and steel from several countries, including India. Then, in May, Trump scrapped the trade privileges that India enjoys under the U.S. Generalized System of Preferences program, claiming India was not providing American goods with “equitable and reasonable access” to its markets. India, which was the largest beneficiary of the program in 2017 with $5.7 billion in imports to the U.S. given duty-free status, struck back two weeks later, hiking tariffs on 28 items imported from the U.S. worth around $220 million.
The sums involved are small compared to Trump’s trade war with China, but they still had Indian officials both worried and puzzled over why Trump was targeting India, a relatively minor player in global trade. Was he grandstanding to play to his base back home? Or is he pressuring India to wring out real concessions on trade and other issues where Washington and New Delhi have their differences?
The U.S. is strongly opposed to India’s new rules mandating financial data storage on servers in India, which it has described as a nontariff barrier that “obstructs digital trade flow.” It is also pressuring India to turn down Chinese telecom giant Huawei’s 5G technology. Bowing to such U.S. pressure will put India at risk of falling behind other countries that have opted for Huawei’s technology, but accepting Huawei comes with its own security concerns, despite China’s offer to address them through a “no back door" pact with India. If Modi’s government takes the Trump administration’s offer to collaborate with India on 5G equipment manufacturing, it will put India firmly on the U.S. side of this contentious technology issue.
India and the U.S. have done well to set in motion a negotiation process to resolve their trade disputes. An early resolution may not be easy, though.
The Trump administration has also been pressuring India to scrap a $5 billion deal with Russia, signed last year, to purchase its advanced S-400 missile defense system, threatening sanctions on India under the Countering America’s Adversaries Through Sanctions Act. The deal would have serious implications for India’s defense ties with the U.S., too, Washington has warned.
But Trump didn’t raise the S-400 deal with Modi, leading Indian officials to hope that the U.S is ready to look beyond it to focus on Washington’s larger defense relationship with India, especially since India will be purchasing other American military hardware. Should the U.S. go ahead with imposing sanctions, though, the Modi government is exploring the option of paying for the Russian missiles in euros.
Following his meeting last week with Pompeo, India’s minister of external affairs, Subrahmanyam Jaishankar, declared that India would be guided by its national interests in its defense purchases. Modi reiterated that position in his talks with Trump. But India hasn’t exactly been consistent here; for example, it doesn’t seem to be applying this argument to its ties with Iran. Instead, it has largely bowed to U.S. pressure and diminished its imports of Iranian oil out of fear of secondary American sanctions.
India has longstanding ties with Iran, which has been an important supplier of crude oil to India and played a vital role in India’s energy and economic security. Like Russia, Iran has also supported India at the United Nations over the issue of Kashmir, standing by it in times of crisis. New Delhi has other economic interests at stake, as it is invested in infrastructure projects in Iran, centered on the Chabahar port on the Gulf of Oman and new roads and railway lines connecting the port to Afghanistan—which would give India an overland route to access Afghanistan and the rest of Central Asia.
India and the U.S. have done well to set in motion a negotiation process to resolve their trade disputes. U.S. officials will be in New Delhi next week to engage their Indian counterparts on trade matters. An early resolution of their conflicts may not be easy, though, despite Trump and Modi’s meeting. With nationalist populism on the rise in both countries, neither government will want to be seen as backing down—especially in the U.S., where Trump will be up for reelection next year.
Some trade experts say that India should therefore focus on a two-pronged approach. While keeping the dialogue with Washington alive, New Delhi should engage other major players that are locked in trade disputes with the Trump administration, “to make the U.S. understand the imperatives of a rules-based trading system.” It is already doing just that. At the recent Shanghai Cooperation Organization meeting in Bishkek and at their subsequent trilateral meeting on the sidelines of the G-20, Modi, Russian President Vladimir Putin and Chinese President Xi Jinping discussed coordinating their strategies to fight U.S. unilateralism on trade issues. Trump’s trade wars appear to be prompting its adversaries to join hands.
Sudha Ramachandran is an independent analyst based in India. She writes on South Asian political and security issues. Her work has appeared in Asia Times, The Diplomat, and other publication
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