Trump, trade and trust

Sanjaya Baru

United States President Donald Trump’s trade policy action against India suggests the narrative of a Rising India may well have met its comeuppance. The action has been explained away by some as collateral damage with the main targets being China and the trade-surplus enjoying OECD economies, especially Germany and Japan. The Federation of Indian Export Organisations has estimated that only $6.35 billion worth of trade, out of a total bilateral trade of $51.4 billion, benefits from US trade preferences. India can absorb that shock. The point is not that. How is it “fair” for the world’s richest nation to target a poor one in the name of “fair trade”?
India is a lower middle income developing economy and will remain so for the foreseeable future. According to the International Monetary Fund (IMF), the per capita national income (gross domestic product, GDP) of the US, in purchasing power parity (PPP) terms was US$62,606 in 2018, compared to $7,874 for India. Most European Union countries have a per capita income in the range of $40,000 to $50,000 and China’s PPP-adjusted per capita income is $18,110. Despite her low income, India remains an open economy. The share of external trade (exports plus imports) in national income is 40.7 per cent for India but only 26.6 per cent for the US.
India does not hide behind high tariff walls, as charged by President Trump, since it has consistently run a trade deficit with the rest of the world. The US, too, has long run a trade deficit with the rest of the world, but for very different reasons and at a very different level of development. At any rate, the US conducts all its trade in its own currency that it prints at will. China, Japan and Germany are the ones that enjoy a trade surplus with the rest of the world.
India has a trade surplus with the US, but Trump’s complaint on that count is like a rich man complaining that he always gives gifts to his poorer friends, and they never give him a return gift. India has, in fact, been a bearer of gifts of another kind. It has exported several generations of highly talented professionals who have contributed to ensuring that the US remains a world leader in technology and knowledge-based businesses. A report prepared by the late K Subrahmanyam, as chairman of the Task Force on US Global Strategy: Emerging Trends and Long Term Implications (June 2006) made the telling point that the US has been able to sustain its global competitiveness in the knowledge-based sectors of the economy by accessing, among other things, the talent of successive generations of bright young Indians. Indian Americans are actively helping “Make America Great Again.”
Part of the reason why India is at the receiving end of Trump’s trade tantrums is because he may have fallen into the trap we created of projecting India as a “Rising Power” and the “World’s Fastest Growing Economy”. In his rush to stop China in its tracks and get European and Asian allies to stand by him, Trump has mistakenly identified India as a target for corrective action. Apart from a couple of sectors, like pharmaceuticals, Indian industry does not pose a significant competitive challenge to US business. India’s trade surplus vis-à-vis the US, at a time when India has long grappled with a trade deficit vis-à-vis China, is more a comment on the challenge posed by China to the US in the Indian market, rather than one posed by Indian exporters to US producers.
Till recently, it used to be suggested by international relations scholars that China is India’s most difficult foreign policy challenge. President Trump may well have changed that to make the US India’s biggest foreign policy challenge. So what does one do? There are, to be sure, many areas where the US and India are still on the same page. But, India has her own national security and developmental concerns that sometimes require it to stand apart from the US. Trump has to be sensitised to this.
To begin with, External Affairs Minister S Jaishankar has to support a new dialogue process similar to what was undertaken in the run-up to the US-India nuclear deal and the subsequent cooperation in the fields of defence and intelligence-sharing. Much of the US-India Track Two dialogue over the past decade has remained stuck within a familiar groove in both capitals even as the focus of domestic politics has shifted in both countries. The dialogues of the past created a new relationship of trust in the post-Cold War era that seems to have since been damaged, and perhaps not just by Trump’s hasty actions. Renewed dialogue is necessary to regain trust. Trump needs to be convinced that helping India’s economic rise will be in the US’s interests in the long run. A more prosperous India will not only offer a bigger market for US exports but will also balance Chinese power in Asia.
India’s policy of “multi-alignment”, as it has been put, should be welcomed by a US that is finding it difficult to manage its reduced clout in world affairs. Trump’s aggressive tactics can at best yield short-term dividends without offering long-term benefits for the US. A mutually beneficial relationship with India will, on the other hand, yield long-term strategic gains for the US. President George W Bush understood and accepted this view. It took President Barack Obama a full four years to arrive at this conclusion. Having wasted his first term neglecting India, Obama came up to speed in his second term. Hopefully, that will not happen with President Trump, who has an entire year of his first term waiting to be made better use of in re-building a difficultly created relationship of trust.
Baru is Distinguished Fellow, Institute for Defence Studies & Analysis, New Delhi.