Trumping the odds

Topics Donald Trump

The one certainty about US President Donald Trump’s first visit to India is that Prime Minister Narendra Modi will organise a spectacular welcome at Ahmedabad and New Delhi. With China weakened by the outbreak of the coronavirus epidemic, this visit takes place at a uniquely opportune moment for India. The question is whether the two leaders, who tend to view negotiations as a zero-sum game, will be able to conclude even a limited mutually beneficial trade deal. The negotiations take place against the backdrop of a US president, fresh from a Senate acquittal from impeachment, seeking a second term in office. On his part, Mr Modi faces a slowing economy with sluggish exports. A game-changing trade agreement with the US, India’s second-largest trading partner with bilateral trade of over $140 billion and top destination for IT and services exports, is therefore, imperative. But Mr Trump’s combative focus on reducing the trade deficit — the issue he puts front and centre of trade negotiations with all countries — comes up squarely against the Modi government’s protectionist proclivities to promote import substitution. 

As things stand, Mr Trump appears to hold the better hand. In 2018, his administration had labelled India a “tariff king”, imposed duties on 14 per cent of Indian exports, and in June last year withdrew the 1970s-era Generalised System of Preferences (GSP), which allowed duty-free exports for over 3,000 products on grounds that India was restricting market access for US products. In 2017, India was the largest beneficiary of the GSP regime, which benefits mostly small and medium enterprises. In tit-for-tat moves, the US raised duties on steel and aluminium and India did so on medical devices. All of this indicates the tricky nature of the negotiations. Visits by India’s trade minister in September and November did not yield substantive results, which is why backroom talks are still on. There are indications that India may cut duties on high-end Harley Dav­idson motorcycles, a low-stakes concession for India, given the limited market for these bikes, and it will play well with Mr Trump’s base. It is unclear if the two have narrowed their differences on farm goods, such as chicken legs and dairy, both produced in states that also count as Mr Trump’s base. To be sure, US energy exports to India have grown and helped reduce the trade deficit, and reports say the Indian government is set to sign a $3.5-billion defence deal for military helicopters. The US State Department has also approved India’s request for an Integrated Air Defence Weapon System for an estimated $1.87 billion. 

That leaves the political dimensions of the visit, with both Kashmir and India’s new citizenship law in play. No doubt, the Indian establishment will draw encouragement from the fact that Mr Trump, the fourth consecutive US president to visit India, has decided not to take a Pakistan detour on this trip. Given the high-octane optics around the visit — thousands of people lining up on the streets of Ahmedabad to greet the president, the deployment of over 10,000 police persons, and the construction of a wall to hide slums along the motorcade route — it is unlikely that the US Representative Pramila Jayapal’s non-binding Congress resolution criticising Mr Modi’s Kashmir policies will gain traction.




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