India Is the Latest Front in Trump’s Endless Trade War
Modi’s soft approach is getting nowhere with a hard-line Washington.
U.S. President Donald Trump has been starting trade wars on all fronts, with escalating spirals of tariffs between the United States and its three main trade partners: the European Union, China, and NAFTA. But there’s a smaller yet no less significant part of the protectionist tit for tat that’s been overlooked: the fight between the United States and India.
This quarrel has the potential to erode the burgeoning strategic partnership between the world’s two largest democracies, which have been closely aligned in military and counterterrorism fields with the goal of stabilizing the Indo-Pacific region and countering the rise of China.
Trump struck the first blow with his steel and aluminum tariffs. India tried hard to get an exemption but failed. And so, on Thursday India began imposing what it deems proportionate payback worth $240 million on 29 American export items including almonds, chickpeas, and chocolates, with 28 tariffs taking immediate effect and a duty on shrimp rolling out on Aug. 4.
The U.S. side was pressing for trade reciprocity even before the Trumpist trade hawks swooped in. Since President Bill Clinton’s administration, the United States has filed six separate cases against India at the World Trade Organization. Despite these conflicts, the deepening of geopolitical cooperation rarely halted. But the unilateralist and rigid way the current U.S. administration is closing its market to imports while simultaneously demanding concessions for its exports has rattled India as much as it has the rest of the world.
India was already on the radar of the’ neomercantilists calling the shots in Washington, although not to the same glaringly visible extent as China, the EU, Canada, and Mexico. U.S. Trade Representative Robert Lighthizer has challenged India’s export subsidy policies as instruments “to sell their goods more cheaply to the detriment of American workers and manufacturers.” He initiated a case against India at the WTO in March, the first such complaint since 2013, and also threatened to revoke the non-reciprocal trade benefits India enjoys under the Generalized System of Preferences by virtue of being a developing nation.
Trump himself has chided India for placing barriers to Harley-Davidson motorcycles by lamenting that “we’re getting nothing” from India. In the services sector too, Trump and a Republican Congress have cracked down hard on the previously relatively easy route for skilled Indian information-technology sector workers into the United States.
The United States is India’s single largest trading partner, with the two-way flow totaling more than $100 billion or more a year, and total trade makes up 40 percent of India’s GDP. There is considerable worry that Trump’s trade war will jeopardize India’s economic boom, with GDP growing at 7.7 percent in the last quarter of 2017.
Indian equities and stocks fell by over 1 percent as the shadow of Trump’s trade war descended, reflecting worries not just about the tariffs but about the reduction of U.S. foreign direct investment into India, and for the fate of Prime Minister Narendra Modi’s signature “Make in India” manufacturing initiative. Modi’s push to transform India into a manufacturing superpower depends on the free flow of capital and the openness of global markets.
India feels unfairly singled out because its trade surplus with the United States, at just shy of $25 billion, is so small compared to China’s nearly $350 billion, or even to Japan’s $69 billion, Germany’s $65 billion, or Mexico’s $63 billion.
Modi’s officials have attempted to juxtapose India with China and argued that the former poses “no such thing as a security threat to the U.S.” The Make in India program is far more modest than the Made in China 2025 high-tech industrial policy under which China aspires to surpass the United States in strategic fields like semiconductors, artificial intelligence, and aircraft manufacturing through massive subsidies from the Chinese government.
Unlike China, which is breathing down the neck of the United States in cutting-edge sectors, Indian industrialization is still relatively immature and not top of the line. Some strategists even contend that a full-blown U.S.-China trade war would benefit India, as friction between Washington and Beijing might redouble New Delhi’s value in Washington’s eyes as a less confrontational actor.
But none of these arguments worked against Trump’s ideological convictions, which demand all-out economic confrontation and dismantling the WTO-based order. India is finding that, however different it is from China, there are no exemptions in Trumpland.
So inflexible is Trump that invocations of the “strategic partnership” between India and the United States and Washington’s designation of New Delhi as a “major defense partner” have not moved the needle on tariffs against India. Sophisticated suggestions, like that of the U.S. House Speaker Paul Ryan (R-Wis.) to deploy tailored tariffs that hurt only China while avoiding broader damage, is music to Indian ears that finds no audience in the White House.
Much to New Delhi’s discomfiture, the present U.S administration has little consistent interest in geopolitical rebalancing vis-à-vis China, which is the de facto foundation of the U.S.-India strategic compact. With treaty allies of the United States like Japan and South Korea themselves being subjected to trade punishment despite their crucial roles in countering China’s military and economic domination of Asia, India is finding that its own importance for the mercurial Trump is equally uncertain.
Yet, given the existential dread that informs how India views the rise of its giant neighbor China, Modi’s government has preferred to tone down the criticism of Trump’s trade harshness so as not to alienate the United States completely. India’s rhetorical reaction has been muted compared to other participants in the burgeoning trade war; even while filing suit against the United States at the WTO, India is still keen to work out its trade differences with the Americans through bilateral channels without spoiling strategic coordination.
But these softly-softly methods are unlikely to cut any ice with an administration locked into the zero-sum logic of Trumpian economics and barely cognizant of geopolitical nuances. Of course, the U.S.-India strategic partnership has other legs besides trade and investment. But if these economic pillars wilt under the stress of Trump’s populism, the quest for a long-term balance of power in Asia could be fatally set back.