Trump Visit: Deal Or No Deal, No Big Deal. The Next 36 Hours Matter

Trump Visit: Deal Or No Deal, No Big Deal. The Next 36 Hours MatterUS President Donald Trump and Prime Minister Narendra Modi in Houston, Texas (White House)
Snapshot
  • While trade tensions between both India and the US are real and substantive, it is important to note the rise in bilateral engagement in the recent past.

    The two countries are well aware that trade is not the only defining attribute of Indo-US relations; there’s much more on the agenda.

The elusive U.S.-India trade deal has been delayed yet again. The trade deal was expected to provide much-needed relief to increasing U.S.-India trade tensions.

However, this was always meant to be a “modest” trade deal, so disappointment over the lack of a deal should be correspondingly modest.

U.S.-India trade is growing. Foreign investment into India continues to defy gravity — increasing over the last year while economic growth overall has slowed.

And defence cooperation provides an opportunity where both countries can emerge victorious. Overall, despite the ‘no trade deal’ damper – there is much to look forward to in the next 36 hours.

A “modest” trade deal anyway

As President Trump gears up for the 2020 elections and Prime Minister Modi grapples with his party losing control of the states, there is pressure on both leaders to assume populistic positions on trade and cater to domestic producer lobbies.

This is exacerbated by the trade deficits in both countries and a zero-sum approach to trade negotiations. The contentious trade issues between the two countries relate to India’s price controls and local content mandates, and the protections afforded to its agricultural and pharma industry that irk America.

India’s proposed privacy bill and its patent laws and licensing rules also make the U.S. uneasy.

India seeks relief on the revocation of benefits under the generalized system of preferences and avoid harmful restrictions on skilled worker visas.

India would also like greater market access for its agriculture, automobile, automobile components, and engineering products.

Both countries desire that the other roll back recent tariffs and counter-tariffs. Anything that can strike at the heart of these thorny issues between the two countries requires a continuing effort.

Any trade deal today is going to be a ‘modest’ trade deal and a quick and temporary fix at best.

Interestingly, despite all this, as per the U.S. Census Bureau, bilateral goods trade increased around 4 per cent in 2019 to a record $92 billion.

Investors remain bullish

President Trump and PM Modi are both pro-business but against existing trade arrangements in which both feel they have lost out. Both nations’ largest trade deficits are with China, and these deficits have triggered broad anti-trade moves that have stoked tensions. But although trade waters are rough, foreign investments are increasing.

Foreign portfolio investors (FPI) brought in net investments of $19.4 billion in 2019 and have already poured $3.39 billion in 2020. Foreign direct investment (FDI) has remained solid with $48 billion in fresh FDI in the 12 months ending November 2019 – this is a 10 per cent rise year-on-year.

Clearly, India remains important to the U.S. despite the slowdown and trade frictions. India on its end has also taken steps that should make U.S. investors happy.

India has recently increased the FPI limit in short term central and state securities from 20 per cent to 30 per cent and relaxed the voluntary retention route.

Further, India increased the FPI limit in corporate bonds from 9 per cent to 15 per cent. Sovereign wealth funds were also given tax exemptions. The Reserve Bank of India (RBI) is also trying to increase foreign inflow through international listings of government securities, which is on its agenda.

India’s investments in the U.S. are also increasing, moving beyond IT services to manufacturing and energy. The U.S. is also hoping to rope in investments from Indian conglomerates during President Trump’s visit to India.

Defence reaching new heights

U.S.-India ties have come a long way from being estranged democracies to strategic partners. And their defence ties are increasingly defining this strategic relationship.

This is mostly given the convergences on a free and open Indo-Pacific and the threat of a rising China.

The United States and India did not have defence trade two decades ago. Today, defence trade has reached $17 billion. The U.S. and India already conduct more military exercises with each other bilaterally than they do with any other country.

President Trump has further relaxed technology export rules for India, notably granting India Tier 1 status under Strategic Trade Authorization rules.

The Trump administration is also willing to sell defence equipment to India that any other administration did not approve.

With three out of four enabling agreements[KU2] signed, a $2.6 billion deal recently approved, and many more in the works – there has never been a better time for U.S.-India defence and security ties.

Many in Washington and New Delhi believe that our defence and security ties could be the saviour of our trade tensions. On the whole, India is reportedly considering close to $10 billion worth of defence deals with the United States in the next three years.

Why the next 36 hours still count

“No deal” has curbed some of the business community’s enthusiasm about the visit. But due attention needs to be paid to the level of engagement. Until 2000, only three serving U.S. presidents had visited India. President Trump will be the fourth consecutive serving U.S. president to visit India, getting the tally of such visits to five in less than 20 years. Beyond the glamour and hype surrounding Namaste Trump, many agreements and MoUs will be signed concerning:

  • Homeland Security (Accord likely)
  • Space cooperation
  • Medical cooperation and information sharing
  • Intellectual property rights (Accord likely)
  • Upgradation of the 2015 joint vision statement for Indian Ocean Region and Asia Pacific
  • Defence purchase deals
  • Oil and Energy: agreements aimed at increasing Indian purchases of U.S. oil and gas – including a likely MoU for liquified natural gas infrastructure.

Trade tensions are creating a lot of friction and could potentially get worse as both sides take steps to erect new trade barriers. However, on the overall scheme of things and timelines of engagement – U.S.-India ties are running strong. After all, diplomacy works incrementally with successes judged over decades.

Kriti Upadhyaya is a research associate for the Wadhwani Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies (CSIS) in Washington D.C. USA. In her role, she focuses on U.S.-India economic ties and Indian federal economic reforms.


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