The ‘Badshah’ Is On His Way to a Rs 120 Cr Welcome!

India and the US frequently trumpet goodwill for each other describing each other as “democracies” and as “strategic partners” against a common rival, China. But India and the US are not on the same page in several substantive ways. There are serious differences on trade. Mutuality on regional strategic issues is also less than perfect.

This is because of the rise of populism and nationalism in the two countries. Competition in nationalism has created a wide chasm between the two. This is more visible now than before because India and the US are presently led by hardcore populist-nationalists – Prime Minister Narendra Modi in India and Donald Trump in the US.

However friendly Modi may be towards the US and Trump, he is under pressure from the Indian nationalist lobby led by the Rashtriya Swayamsewak Sangh (RSS) and other “Hindutva” organizations not to allow foreign interests to dominate India’s economy or curb Indian domestic trading, economic and political interests.

Likewise, Trump is pledged to safeguard America’s and Americans’ trade and political interests vis-à-vis other countries, having come to power on that plank and hoping to be back in power on that very plank.

It is this duality – the need to be together on one plane, and the need to differ on another, which will determine the outcome of Trump’s two-day visit to India on February 24 and 25.On the one hand, the reception to Trump will be as grand as, or even more grand than, the one given to Modi when he visited the US in September 2019. An estimated 50,000 had gathered at the “Howdy, Modi” event in a stadium in Houston, Texas. Commenting on his visit to India, Trump boasted that Modi had promised to get 7 million people lined up to receive him on arrival at Ahmedabad in Modi’s home State of Gujarat. 7 million is more than 80% of Ahmedabad’s population.

And in line with “Howdy Modi” in Houston, Modi will hold a “Namaste Trump” rally in the newly constructed Ahmedabad Stadium, said to be the world’s largest with a capacity of 100,000. According to the Indian media outlet WION, Trump’s three-hour sojourn in Ahmedabad would cost the Indian exchequer Rs.120 crore (US$ 16.7 million). The preparations included the building of a half a kilometer wall to prevent Trump from seeing an ugly roadside slum.

The initial expectation was that Trump and Modi will negotiate a new mega trade deal and lay the foundation of a Free Trade Agreement (FTA) and an investment pact ironing out persistent differences. But Trump pricked the balloon saying: "We can have a trade deal with India, but I am really saving the big deal for later, maybe before elections.” The Indian side chimed in saying that both sides did not want to “rush into a new agreement as it will have long term consequences.”

This led to commentators describing the 36-hour Trump visit to India as a “Tamasha” as vacuous as the grand reception Modi gave to the Chinese President Xi Jinping – a lot of song and dance with little substance.

In 2018, the US was India’s second largest goods export market (16.0% share) and the third largest import supplier (6.3%) after China (14.6%) and the EU28 (10.2%). But Indo-US bilateral trade is facing severe problems.

According to Shayerah Ilias Akhtar, who wrote a paper for the Congressional Research Service (CRS), India is demanding exemption from high duties imposed by the US on certain steel and aluminium products. It wants resumption of export benefits to certain domestic products under the US General System of Preferences (US GSP) and greater market access for its products from sectors including agriculture, automobile, auto components and engineering.

On the other hand, the US wants greater market access for its farm and manufacturing products, dairy items and medical devices, and cut on import duties on some ICT products. The US has also raised concerns over high trade deficit with India which was US$ 16.9 billion in 2018-19.

India has relatively high average tariff rates, especially in agriculture. After India lost its eligibility for a US GSP in June 2019, it imposed higher tariffs affecting about US$ 1.4 billion worth of US exports (2018 data), such as nuts, apples, and chemicals. India also raised duties on certain “non-essential” consumer and other goods to stem its current account deficit. There are non-tariff barriers too. The two sides are challenging each other’s tariffs in the WTO.

In 2018, India was the largest beneficiary of GSP. Over one-tenth (worth US$ 6.3 billion) of U.S. goods imports from India entered the US duty-free under the program, such as chemicals, auto parts, and tableware. GSP removal reinstated US tariffs, which range from 1% to 7% on the top 15 GSP bilateral imports, Akhtar says. India has raised barriers to US firms’ ownership of enterprises in the country to meet “local presence” requirements.

A key issue for India is the US temporary visa policies, which affect Indian nationals working in the US. India is challenging US fees for worker visas in the WTO, and monitoring potential US action to revise the H-1B (specialized worker) visa program.

Sanitary and phytosanitary (SPS) barriers in India limit US agricultural exports. According to Akhtar, the US questions the scientific and risk-based justifications for such barriers. Each side sees the other’s agricultural support programs as “market-distorting”. India’s food security concerns complicates matters for the US.

The two sides differ on how to balance Intellectual Property protection with broad access to medicines. India remained on the “Special 301” Priority Watch List in 2018, based on U.S. concerns over its treatment of patents, infringement rates, and trade secret protection.

The US questions India’s indigenization policies which it calls “forced localization practices”, such as domestic content, and domestic testing requirements, Akhtar points out. Adding to U.S. concerns are India’s new restrictive localization rules for certain financial data flows, which affect companies such as Visa and MasterCard. New Indian restrictions on e-commerce platforms such as Amazon and Walmart-owned Flipkart worry the US.

India recently announced that it would not join the Regional Comprehensive Economic Partnership (RCEP), citing concerns about RCEP’s fairness and balance, and about the potential effects of opening its markets to imports from manufacturing giant, China.

Defense Trade Doing Well

But the US is doing well in trade in defense items, Akhtar notes. The two nations have signed defense contracts worth more than US$ 15 billion since 2008, up from US$ 500 million in all previous years combined. Major anticipated sales include 24 MH-60 Seahawk multi-role naval helicopters (US$ 2.6 billion) and 6 additional AH-64 Apache attack helicopters (US$ 930 million), among others. India is eager for more technology-sharing and coproduction initiatives.

However, Akhtar points out that the US has urged India to announce higher FDI caps in its defense sector. Also India’s multibillion-dollar deal to purchase the Russian-made S-400 air defense system may trigger U.S. sanctions under the Countering America’s Adversaries Through Sanctions Act (P.L. 115-44).

Politico-Strategic Dimension Ignored

Those specializing in strategic affairs regret that the Trump administration is too US trade oriented and is missing out on the strategic aspect of its relations with India. The US needs India to counter China and Russia in the South, South East and Central Asian region. But this aspect is sacrificed at the altar of domestic trading interests.

“The administration does not have an integrated policy toward India or anyone else for that matter,” Ashley Tellis, an India expert at the Carnegie Endowment for International Peace, told a leading US foreign affairs magazine. “The fruits of a schizophrenic policy are becoming evident,” he added.

Like the US, India too is primarily concerned about its domestic economic interests. The Indian government has the local trade and industries lobbies to cater to, as these are its electoral constituencies. Both India and the US are democracies holding periodic elections, and nationalism has arisen as a key factor in politics in the two countries. It is the combination of populism and nationalism in the two countries which has created trade tensions between them.