US President Donald Trump has launched what some consider to be a `dangerous’ trade war against China, America’s only challenger in the global power sweepstakes. While the trade war is certain to have repercussions on global growth, it can be understood in the larger context of America trying to revive its flailing economy and its need to show the world that Pax Americana remains intact.
However, what is not clearly understood are the reasoning behind America’s trade tirades and pressures against India, its largest potential ally in Asia against the rise of China. In early March, President Trump issued a notice to end trade benefits to India under the GSP or generalised system of preferences, which allows duty-free exports to the US of about 2,000 products from developing countries. This special status was placed under a review on grounds that India, the largest beneficiary of the GSP scheme, wasn’t reciprocating with greater access to its market.
This was followed up two months later by a visit by US Secretary for Commerce Wilbur Ross who took Indian officials to task, openly complaining that “US businesses face significant market access barriers in India.” The issues taken up by the team led by Ross ranged from high tariffs to US airlines not being allowed to do their own ground handling to rules for e-commerce which American companies felt discriminated against them.
Indian officials who were part of the negotiating team said the Americans were insistent on getting `bargains’. India was willing to concede on many issues “but were not ready to accede on all counts despite the tough bargaining by the Americans”. Less contentious issues like letting US airlines handle their own ground handling (Delta plans to resume flying New York to Mumbai from this winter, taking on Gulf based airlines who monopolise the growing Indian air traffic to the US) were resolved. However central issues such as complaints of tariff and non-tariff barriers have as yet not been settled, though India has made unilateral offers of tariff cuts. Nor have Indian complaints that barriers against their software firms been re- solved. U.S. goods and services trade with India totaled an estimated $142.1 billion in 2018, with India enjoying a trade surplus of $24.2 billion.
Even before this, Trump had repeatedly attacked his Asian ally, much to the consternation of State Department diplomats claiming that India is a “tariff king” and imposes “tremendously high” tariffs on American exports. Last year Trump had dismissed as inadequate the Narendra Modi government’s decision to halve import tariff on Harley-Davidson motorcycles from 100% to 50% last year.
Add to that USA’s extremely disruptive fiat that India along with other allies such as Japan stop buying oil from Iran. This threatens India’s attempt to build its own rival to China’s `One Road-one Belt’ by building not only the Chabahar port on Iran’s Makran coast but also a network of roads and rails linking Afghanistan and Central Asian republics with the port and thus to India proper. Iran is believed to have quietly hinted to India, that it should follow China’s lead in continuing to buy Iranian crude or risk the gains it has made in Iran.
This has happened even as India has pulled its weight by silently partnering the US in its war against terror. It is also seen as the only strong ally in USA’s pivot towards Asia. Several military pacts signed by the two on sharing logistics, training and communications have virtually made them military partners, without stating it openly.
The `Quad’ which the US tried to forge as a counterpoise to China with India, Japan and Australia as members hasn’t been totally successful, but is still a grouping which regularly meets, conducts naval excercises with an eye on China and speaks out openly against China’s bid to turn the South China Sea into an exclusive Chinese pond.
In fact, within a week of Ross’s visit to New Delhi, the US Naval chief Admiral John Richardson weighed anchor in a trip to the same city to talk about the next round of naval exercises with India. Richardson’s visit in fact followed a US Secretary of State Mike Pompeo’s statement that the US was “banding together with like-minded nations like Australia, India, Japan and South Korea to make sure that each Indo-Pacific nation can protect its sovereignty from coercion”.
Yet, the verbal attacks by USA’s top leadership on India’s trading system and even moves such as denying India a continued exemption from its embargo on Iran selling oil to the global community are seen as moves which work contrarian to the stated US strategic interests in ties with India.
However, many believe there is method behind Trump’s apparent `maddening’ disruptions. The United States since World War II has emerged as the world’s biggest marketplace where every nation aspires to sell. Japan, Korea and almost all the `Asian tiger’ economies, grew their economies by trading with America and Europe in the 1950s through 1970s. China too has followed that model since 1979 and India since 1991.
As a consequence, the United States has the highest trade deficit in the world, which currently stands at a staggering $ 621 billion, roughly the size of Saudi Arabia’s GDP in 2017, just to give a comparison. The reason for the deficit boils down to the US as a nation spending far more than it earns. This extra money is fuelled by sale of US federal bonds to banks and foreign Governments (China is the largest holder of US Treasury bonds) and most of this money is spent on buying foreign goods.
It was but natural that at some stage the US would try to set right this huge deficit and demand that the world buys more of what it produces and agrees to it protecting its home turf to some extent. The death of American manufacture in its inner cities through the 1990s and 2000s, as cheaper Chinese and Latin American manufactures replaced costlier American products coincided with the period when US trade deficit rose from zero to a substantial amount, threatening its long-term economic prosperity.
In some ways if one looks at the issue dispassionately, Donald Trump’s `America First’ as a policy is not very different from what the Japanese adopted after Second World War, or the policy of reforms that China adopted under Deng Xiaoping or even the one which India adopted after the initial rush of free imports in the post-liberalization 1990s. The only difference being the aggression which accompanies USA’s attempt to set right its economy.
Nevertheless, the fact remains that the manner in which President Trump is going about trying to right his nation’s perceived wrongs by aggressively stalling trade deals and threatening trade blockades through duty walls has proven to be not only hugely disruptive, but also abrasive. As one Indian Mandarin remarked drily “it’s hardly the way one can win friends or allies.”
The way forward has to be accommodation by both the nations the US has targeted as well as by the Trump regime itself, which has to understand that while protecting the American economy may be laudable, disrupting the world trading order may cause its own backlash on the US economy and kill all chances for a US and global recovery or of allies like India and Japan supporting Pax Americana wholeheartedly.
(Jayanta Roy Chowdhury is a senior Indian journalist)