Special trade ties with America aren’t India’s only export game
Summary
- US Vice-President J.D. Vance’s visit to India may speed up progress on a trade deal with the US, although contentious areas remain. Meanwhile, we have good reason not to ignore Beijing’s overtures.
US Vice-President J.D. Vance’s India visit has upped hopes of speedy progress on a trade deal between the two countries. He is here with his wife Usha Vance, whose parents are of Indian origin, and their children. His itinerary features the usual tourist attractions. But the significance of his tour is not lost on anyone. Both Washington and New Delhi want an interim trade deal struck swiftly, even if doing so before early July, when President Donald Trump’s 26% ‘reciprocal tariff’ pause ends, seems over-ambitious. Vance’s visit is expected to firm up the groundwork and may set the stage for a possible visit by Trump later.
Also Read: How Trump’s advisors got tied up in knots over his tariff obsession
Of course, reaching a consensus is easier said than done. For the Narendra Modi government, granting easy market access to US goods would require policy re-calibrations and trade-offs. Local manufacturers would be uneasy with concessions, while farmer interests will need to be borne in mind. If our farmers see exposure to competition from American farms as a threat, a political blowback may brew.
As the storm of 2020-21 over an attempted shift in agricultural policy showed, this sector expects direct state support with no quarter granted for market-driven adjustments that take time. But Trump’s hard-ball approach could push New Delhi out of its comfort zone.
Concessions to the US seem inevitable. But where could these be made? Some easy choices have already been exercised by India’s government. Bourbon whisky and large motorcycles, for example, already have a smoother ride into liquor cabinets and onto Indian streets. Since these are markets with low sales offtake, the impact will not unsettle much.
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In many other categories, lowering import barriers could spur local players to up their game and compete harder with US rivals. To the extent it helps keep Indian businesses on their toes, trade openness is welcome. Taking on foreign competitors on one’s home turf serves as a prelude to exploiting markets abroad.
This logic, however, does not quite apply to a sector that is vital for food security and remains state-cradled, like agriculture. Tariffs on some nuts and other items that we barely grow could be reduced, but for many others, local livelihoods would be a major consideration. Dairy products are particularly fraught. India has deep reservations over edible items made from the milk of cattle fed on cattle-feed with animal protein content. Such feed mixes are common in the West, but even ‘red dot’ labelling might not suffice to defend the sensitivities of Indian consumers who may see all dairy products as ‘pure veg.’
Given the US formula for proposed country-specific tariffs, New Delhi’s plan is likely to focus on reducing our $40 billion-plus trade surplus with it. Oil purchases and defence deals could aid that effort.
Also Read: Trade face-off: Will Trump’s America back down first or Xi’s China?
Yet, our trade-policy rejig in response to Trump’s agenda should not be mono-focal. Last week, Chinese ambassador Xu Feihong said China could help reduce its trade surplus of almost $100 billion with India by buying high-quality Indian goods. We must respond to such overtures. Should US-China trade ties snap, we may have a chance to plug some shortfalls on both sides, for which we need talks with Beijing too.
Although China has failed so far to bump up consumption, it must finally do it now to sustain its economic growth. This could expand its shelf space for wares from India. Perhaps even the US will soften its stance if we signal that we don’t really view its market as the be-all and end-all for our exports.
