US-India Relations – It’s Time to Trade

By consensus, this term of the Trump presidency is going to be more focused on delivering on his stated agenda and his cabinet pick reveals that loyalty to Trump is the paramount requirement for appointment.

In this background, Trump has formally announced his strategy to weaponize trade by threatening to impose a blanket increase on all tariffs for goods coming in from Canada, Mexico (both 25%) and China (10%).  The levies will be imposed by executive order and are ostensibly being done to punish the Canada and Mexico for failing to halt illegal immigration into the US and on China for failure to act on exports of synthetic fentanyl to the US.

If this were to occur – the impact would be humongous. The trade between US and these three trading partners will impact exports and imports of over US$1.3 trillion.  It will drive up US consumer costs, wreck supply chains, severely affect exports from China, Canada and Mexico (all of whom who will undoubtedly retaliate), as well violate several international agreements made by the US.

This is one dimension of Trump’s trade war – the second leg is reciprocity.  Trump has said that he wants to impose reciprocal tariffs and not tariffs on a Most Favoured Nation (MFN) basis.  Under the latter, every country gets the same tariff, but under the reciprocal tariffs it would be a tit-for-tat.

Trump has called out India as the biggest tariff charger and during a rally he said – “Perhaps the most important element of my plan to make America extraordinarily wealthy again is reciprocity,”  He wants that India applies the same rates to the US as US does to India.

This sets the stage for India to step up.  From this global mayhem, it is time for India-US trade to rise as a phoenix from the chaos.

Since the Bush presidency, India has been drawing closer to the US – from the signing nuclear agreement in October 2008 by Manmohan Singh to India’s firm position on the QUAD alliance in 2024 – the relations between India and US have never been better.  Add to this the personal equation between Trump and Modi India and US, the diaspora who can hasten this (Vivek Ramaswamy, Nikki Hailey, Usha Vance – through pillow pressure) along with the Indian business leaders in tech and otherwise are a strong lobby to make this happen.

India has been shadow boxing with UK, EU and several other large economies on FTA negotiations, for one reason or another, these have been inordinately delayed.  With the demise of the WTO, the only option is for like-minded economies to engage in trade.

 The US has emerged as India’s top trading partner in the January-July 2024 period with bilateral goods trade surpassing $72 billion and Indian exports growing 9.3 per cent to $48.2 billion. Our trade balance with the US is favourable and it is a vital source of foreign exchange.

The US trusts India enough to be included in the sharing of sensitive intelligence– as was seen during the China border situation recently.  The US recently sold India Predator drones and permitted US companies to provide consultancy to India for combat drones.  On the softer side, Indian students flock to the US (more than to any other country and replacing China as the number one country) and India has captured over 70% of the H-1B visa’s in 2023.  The Indian community has the highest GDP amongst immigrants in the US.  On the geopolitical front, the US doesn’t need Pakistan, and more importantly needs a strong India to counterbalance China in the region.  On the India domestic front, Trump’s approval rating is the highest in India – even more than in Israel.

The stars are aligned:  a dealmaking US President who has virtuality invited India to trade as equals and not behind tariffs, a rapidly growing and diverse export baskt of trade between the two countries, deeper people to people contact and the world’s largest population aspiring to grow – where better than to the woeld’s richest market.

Now for the trade deal:  India will need to make concessions on some historically ‘no-go’ areas such as agriculture, dairy, investment in sensitive sectors, legal services and the like.  The US needs a large trading ally to replace China and a counterbalance in the region.

While threatening reciprocity in tariffs to India, he said Modi is a friend and fantastic man!  Modi needs to use all of his charm, influence and statesmanship to get a deal with the greatest deal making President of our times and double down to ensure that Indian companies have access both to the lucrative US market and abundant capital from the US.

The dominance of the US market can be gauged from one single fact – the market capitalization of Nvidia alone is greater than the entire German bourse put together – including Mercedes, BMW, Volkswagen, Siemens and the like.  We need to access this wealthy market and grow India’s GDP faster.

India stands to gain tremendously by hitching our economy to that of the US. India needs capital, access to a large market with buying power to push up our per capita GDP. US need a reliable trade partner with the ability and aspiration to manufacture for the US economic behemoth.  US will also gain access to a large market in India, which is becoming increasingly affluent. Mutually beneficial trade, history has shown, is preferred to legally imposed obligations to trade. The WTO imposed trade in the nineties, China gained by gaming the system. It’s time for multilateral trade to make bigger space for bilateral trade and India and the US to lead the way?

This article has also been published in Lexology