5/19/2019 White House shouldn't drag India into trade war - The Economic Times

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Trump has obsessed over India's levies on Harley bikes and complained about its $24.3
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In recent months, President Donald Trump
Ban on Chinese goods will fail, work harder if you
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beyond the People’s Republic. Not only has
he threatened Japan and Europe with import Cars and shampoo tell a tale of India's slowing
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duties on cars, he’s repeatedly blasted India
as “the tariff king.” More »

A number of those policies are actually designed with

China in mind. Like the U.S., India runs by far its largest Trump has obsessed over the Asian giant’s Top Trending News
trade deficit with its wealthier neighbor. high levies on Harley-Davidson motorcycles
RBI cuts repo rate Modi rally in kolkata JDU IAF
and complained about its modest $24.3 Amit Shah Arun Jaitley Yogi Adityanath ET Prime
billion surplus in trade with the U.S. In March, the president gave Congress notice that he
plans to terminate duty-free privileges for $5.6 billion worth of Indian exports to the U.S. He
could do so at any moment.

And Trump may not stop there. His administration is toying with the idea of exercising the
same legal authority used to levy unilateral tariffs against China to impose higher duties on
India. Imagine the world’s largest democracy, which Washington has diligently sought to
enlist as an ally against Beijing, being lumped together with America’s main strategic
competitor.

India represents the rare bright spot in U.S. foreign policy. With much difficulty, a years-
long, bipartisan effort has greatly deepened ties with the prickly emerging power. Once
considered the ultimate swing state, India is now seen as the fulcrum of the White House’s
Asia strategy.

Trump’s trade tactics appear to reflect a belief that the U.S. can fight tooth-and-nail with
friends such as Europe and Japan without jeopardizing broader strategic ties or
undermining efforts to balance China. Even in the unlikely event he’s right, given that those
longtime allies count on the U.S. security umbrella, that’s hardly a winning play in India.

The country hasn’t entirely shed a post-colonial mindset; it fervently values its autonomy
and its place as a non-aligned nation. Regardless of how powerful strategic ties have
grown in recent years, India still has no interest in a formal alliance with the U.S.

Successive U.S. administrations have generally been willing to respect India’s choices. At
the same time, they’ve quietly labored to strengthen habits of cooperation. Through a
series of actions — in particular a civilian nuclear agreement reached in 2005 — these
administrations have effectively declared: “India’s rise lies in America’s interests.”
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5/19/2019 White House shouldn't drag India into trade war - The Economic Times

If frictions were now limited to trade, those common interests might provide enough glue to
maintain this positive momentum. Instead, the Trump administration’s complaints have
expanded to include demands that India cut oil imports from Iran to zero and abruptly end
significant arms purchases from Russia, or else face sanctions. The president has even
belittled India’s significant development contributions in Afghanistan.

All this only reinforces the suspicions some Indians still hold about U.S. reliability. Being a
stakeholder in India’s future implicitly requires trading some short-term gains for more
important long-term returns. The Trump administration should remember that an
economically vibrant India will also be a much more capable strategic partner.

A hasty step such as removing developing-nation trade benefits, on the other hand, could
begin to undermine the core logic of the partnership. Whatever government emerges from
Indian elections that conclude later this month may well decide it has little choice but to
respond with retaliatory duties.

This would run counter to India’s own interests, of course. A trade confrontation with the
U.S. would undermine its argument that global companies should choose its huge, young,
tech-savvy market as an alternative to China. Foreign investment is crucial to helping India
develop its economy and play a more robust regional role.

It’s also worth pointing out that Trump is not entirely wrong. India is in need of trade reform
and could have taken useful steps after Washington launched an April 2018 investigation
into its practices and before the onset of the current political season. Instead New Delhi
made scant progress and even slid backwards. The new government should swiftly revisit
illiberal trade policies that hamper India’s regional economic integration, exports, global
competitiveness and labor productivity.

A number of those policies are actually designed with China in mind. Like the U.S., India
runs by far its largest trade deficit with its wealthier neighbor. If just afforded a chance, it
might quietly lend a hand to U.S. efforts to change China’s trade approach.

The Trump administration should give Indian leaders at least a couple months to get
organized and draft some serious proposals, including on e-commerce restrictions. While
the U.S. dukes it out with China, India can hopefully get its act together and give Trump
less incentive to launch another ill-advised trade assault.

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