Before embarking on his two-day visit to India, US President Donald Trump has dashed hopes of a meaningful trade deal between the two countries. American and Indian negotiators have blamed the other side for a lackadaisical response and for shifting the goalposts respectively.
High tariffs and trade deficit with India are a constant refrain of Trump’s bashing of India as ‘tariffs king’. He has accused the country of denying American products an ‘equitable and reasonable access’ to its markets. The visiting president has assured his voters that he will ‘talk business’ with Prime Minister Narendra Modi.
Modi should use the occasion to talk business with his guest by conveying some relevant facts. India does not figure even among the top 10 countries, which includes Ireland and Malaysia, with which the US runs trade deficits. For 2019, the US trade deficit with India at $23.3 billion dwarfs the corresponding figure for China — $346 billion.
The Trump government’s aggressive stance seems to be guided by a belief that trade is more consequential for India than the US. The latter is the second largest trading partner of the former, but India comes a distant eighth among the US’s largest trading partners. This is a rather short-sighted view. India is already the third largest market and its economic heft is, despite a slowdown, growing by the year.
India is generating Big Data – the proverbial ‘new oil’ — in super abundance. The country is witnessing unparalleled growth in mobile data fueled by low-cost connectivity enjoyed by 800 million users. Several US tech giants, like Facebook and Google, are already earning substantial profits using Indian data. In the coming years, a much larger number of US firms will need access to Indian data to create jobs and wealth in their country in activities such as artificial intelligence (AI), robotics, Internet of Things (IoT), cloud computing, data analytics, and nanotechnology. Potential gains from cooperation are many.
But there are serious differences. The Trump government demands easy access for its dairy and agriculture products to 1.3 billion Indian consumers. It is opposed to the Indian measures to make healthcare affordable — price caps on drugs and medical devices like cardiac stents and knee implants. Differences also abound over rules for data localisation and ecommerce.
These issues have resulted in trade skirmishes. It started with the US raising the import duty on Indian steel and aluminium products — as ‘national security measures’ against a country that’s supposed to be its ‘strategic partner’! India retaliated by dragging the US to the dispute settlement mechanism of the World Trade Organisation (WTO) and increased duties on import of 29 products from the US, including almonds, walnuts, and pulses.
To ratchet up the pressure, from June 2019, the US suspended India’s special status under the Generalised System of Preferences (GSP) that provided duty-free access to $5.6 billion worth of Indian exports. Admittedly, the concession was revoked in response to the ‘failure of the Indian government to provide equitable and reasonable access to its markets in numerous sectors’. In keeping with his reputation as transactional leader, just before embarking on his India sojourn, Trump has classified India as a ‘developed nation’ to eliminate the concessional treatment to India in countervailing duty investigations against its exports.
Trump and Modi should use the visit to work out a framework for addressing the differences in the spirit of give and take. Their decisions will have real impact on people’s lives and long-term economic consequences in areas ranging from agriculture to health to manufacturing, digital trade, ecommerce and big data.
For a start, the two countries should restore the status quo ante by reversing increases in duties imposed on each other, and withdrawing complaints at WTO. The US should restore GSP status for India. The gains from it can be used by India to buy US goods, including oil and gas.
The Indian side should also realise that a flexible policy can work better for the country. For instance, not all drugs and medical devices like stents and implants are the same. It is not necessary to have price cap on all. There are standard-use products and devices, and their more advanced versions, which must be differentiated by price to incentivise drug and device companies to bring their latest products to the Indian market. Otherwise, India will lose out on the latest drugs and techniques in healthcare.
One possibility is to go for an across-the-board trade margin rationalisation in view of the costs and expenses incurred by producers. The import duties on high-end Harley-Davidson motorcycles can also be slashed without adversely affecting the domestic motorbike industry.
The agriculture and dairy sectors are complex. India needs to protect the livelihoods of some 500 million dependent on these sectors who are no match for their US counterparts. Besides, there are cultural sensitivities. India demands certification that dairy imports are not sourced from the milk of animals raised on bovine extracts-based feed. This is unacceptable to the US. One possibility is quota-restricted imports with clear package labelling regarding cattle feed. India should be open to import of more fruits such as blueberries and cherries.
Finally, in its own interest, India should further liberalise foreign direct investment (FDI) norms and facilitate investment by US companies in infrastructure, storage capacity, manufacturing plants and insurance sectors. Addressing these and other issues such as intellectual property rights (IPR) will require the two sides to work in the spirit of cooperation befitting the world’s two largest democracies.
The writer is professor, Delhi School of Economics