Friendly fires: U.S.-India relations remain at loggerheads over trade

President Donald Trump and Prime Minister Narendra Modi of India shake hands during the G-20 Summit in Osaka, Japan, on Friday morning, June 28, 2019. (The New York Times)

U.S.-India relations, long seen as an example of enduring partnership between the world’s largest and the oldest democracies are facing some major tests of trust and confidence these days, or so it seems.

While nobody is ready to write off the relations marked by warmth and cordiality, especially under the administrations of George W. Bush and Barack Obama, there are serious concerns regarding the continuation of the relations on an even keel, particularly on trade and business fronts.

Frictions over the issue of bilateral trade have been building for months between the two nations beginning last year withPresident Trump accusing India of imposing “tremendously high” tariffs on American products like Harley Davidson motorcycles and sarcastically calling India a tariff king.

Earlier in June this year the Trump administration cancelled India's trade privileges under the GSP, hitting Indian goods worth six billion U.S. dollars, which previously had duty-free access to the U.S. market, annoyed apparently by its $24billion-trade deficit with India.

Matters came to a head when Prime Minster Modi’s government imposed retaliatory import tariffs on 28 items from the U.S., amounting up to 1.4 billion U.S. dollars.

According to the U.S.State Department, U.S.-India bilateral trade reached $142 billion in 2018, amounting to a massive sevenfold increase since 2001. India was the United States' 13th largest goods export market in 2018 and it was the United States' 10th largest supplier of goods imports in 2018.

The visible strain in relations is the result not just of bilateral disagreements relating to tariff but also issues like proposed data localization by India and immigration to U.S. where authorities have sought to discourage American companies from hiring foreign high-skilled temporary workers on H1B visa, mainly from India , thanks to President Trump’s America First executive order.

Coupled with this, Washington’s withdrawal from the Paris climate change agreement, aluminum and steel tariffs, and the change in the U.S. approach in Afghanistan and sanctions on oil imports from Iran and Venezuela, India’s major suppliers, along with $5 billion deal with Russia for purchase of a new air defense system, have also added to the present imbroglio.

Tanvi Madan, a fellow in the Project on International Order and Strategy in the Foreign Policy program at the Brookings Institution, and director of The India Project, noted in a blog on June 21 ahead of Secretary of State Mike Pompeo's visit last week to New Delhi that the major bilateral sore spot is on the economic side, where friction over trade, investment, and immigration concerns has only increased.

She said that to the pre-existing American concerns about market access and price controls on medical devices, the Trump administration has added concerns about India’s e-commerce regulations and data localization plans.

“These trade frictions are of particular concern. For one, it is an issue President Trump cares about deeply, and the grounds on which he measures relationships—far more than what any country does or does not do on the defense and security front. Second, he has shown that he is willing to link national security and trade commitments even with allies—this is a far cry from the last two administrations, which prioritized long-term strategic ties over short-term economic frictions.,” Madan said.

She noted that given that these economic difficulties involve and affect key domestic priorities and constituencies for both governments, concessions are not easy for either side to make. “Both sides seem to believe they are speaking from positions of strength and might feel they do not need to make concessions—Modi after receiving an even stronger electoral mandate, and Trump after garnering concessions from countries like Canada and Mexico,” Madan wrote.

Successive U.S. administrations since Bill Clinton's visit to India in 2000 have worked to deepen strategic ties with New Delhi. In 2016, India was named a Major Defense Partner of the United States, a unique designation created to bridge the gap between India's independence and a U.S. system built around alliances.

In the past two decades, Washington and New Delhi have seen considerable improvement in their bilateral relationship, especially in defense cooperation.

From Clinton to Trump, U.S. presidents have highlighted the U.S.-India relationship as one of their diplomatic priority. In 2018, the Trump administration, in a symbolic nod to India's growing military relevance, changed the name of its Pacific Command to the U.S. Indo-Pacific Command.

All these issues were in the background when last week Secretary of State Pompeo arrived in New Delhi for talks with Indian leadersto tackle a host of such thorny issues from trade to India’s longstanding defense and energy ties to Russia and Iran.

But in the end his visit that basically aimed at laying the ground for talks between President Trump and Prime Minister Modi end of this month on the sidelines of the G20 summit in the Japanese city of Osaka, was not seen to have achieved much, analysts said, beyond reiterating Washington’s known position on trade tariffs and other feisty issues such asIndia’s oil import from Iran and $5 billion deal with Russia for purchase of a new air defense system.

The deal with Russia, signed in October 2018 during Russian President Vladimir Putin's visit to New Delhi, has potentially opened India up to U.S. sanctions under what is known as Countering America's Adversaries Through Sanctions Act (CAATSA).

That this is an obstacle was noted last August by Ashley Tellis, one of the foremost strategic experts in the country, in a major report titled, ‘How Can U.S.-India Relations Survive the S-400 Deal,’ which said it’s “a specter that haunts the bilateral relationship.”

In New Delhi last week Pompeo sought to playdown the trade spat with India in order to salvage the “rapidly deteriorating” economic relationship between Washington and New Delhi.

“Great friends are bound to have disagreements; the United States has been clear we seek greater market access and the removal of trade barriers in our economic relationship,” Pompeo saidwhile addressing the press conference along with his Indian counterpart Subrahmanyam Jaishankar.

He said he was optimistic that both sides could reset trade relations, but gave few details on whether any tangible progress had been made.“Today I addressed these differences in the spirit of friendship and I think that the two of us will be able to see a good outcome for each of our two countries,” he added.

According to a CNN report Jaishankar said, "My urging was that we take a constructive and pragmatic view ... It is natural when you have trade, there will be issues and I think the real test of our intentions is our ability to address them effectively. We are committed to making it easier to do business, to provide a level playing field and to grow with the world economy."

In an interview with India Today magazine, Pompeo said in his talks with the leadership, there was a deep understanding “for the sake of our two peoples, for the region and the world as well. “America and India need to be good, solid reliable partners for each other. We in the U.S. benefit from India and we know that you benefit from the relationship with us. We should not focus on differences,” he said, adding that “these are the small pieces of our overall relationship.”

Writing in a speak piece in The Hindu, journalist Varghese K. George commented that Pompeo and his Indian counterpart Jaishankarhave the tough task of managing a bilateral relationship that they both know is critical, without appearing to be undermining the nationalist, cultural and economic agendas of their leaders, which mirror each other, and hence create a situation of likes repelling each other.

“Mr. Trump and Mr. Modi are guided by nationalisms that have cultural and economic components. In both, their views converge in some aspects and conflict in some others. For instance, on the cultural front, they could cooperate on global Islamism.

“But the growing presence of Indians in America is a source of conflict — Mr. Modi’s politics involves boosting the global Hindu; but Indian Americans are cultural aliens to Mr. Trump’s supporters, besides being seen to be their economic adversaries. The sustained squeeze on Indian guest workers entering the U.S., particularly through the H-1B visa program, is a case in point,” George noted.

For now, all eyes were set on the G 20 summit in Osaka, Japan to see if Modi and Trump are able to come out with a mutually acceptable solution on the feisty tariff and other issues.

The New York Times reported June29, that less than 24 hours after tweeting a strong complaint about India’s trade policies, Trump met with Modi, beginning conversation with congratulations on Modi’s recent re-election and “conciliatory comments about the need for close bilateral relations.”

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