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What India must do after Trump returns home

The two-day visit of US President Donald J. Trump to India, his first since assuming office, is an opportune moment to take stock of the bilateral relationship. With an ebb and flow since the early days of the new Indian republic, the relationship reached a high point during the Indo-US nuclear accord of 2008. Recall that this was passed, remarkably, by a lame duck session of the US Congress in the last days of the George W. Bush presidency.
 
While the eight years of Barack Obama’s presidency were marked by some theatrical flourishes, including reciprocal visits by Obama and India’s Prime Minister Narendra Modi, the relationship remained stuck in neutral, with no major agreement on the economic nor on the defence and security fronts.
 
With the ascent of Trump to the US presidency, India received greater importance—at least in terms of rhetoric. That showed in actions such as the renaming of the US Pacific Command as the US Indo-Pacific Command in 2018, along with an explicit nod to treat India as a greater focus of strategic interest for the US. 
 
Unlike his predecessor, Trump has not been afraid to challenge the rise of an authoritarian China, embarking on a full-fledged tariff war with the country in an effort to pry concessions on market access and intellectual property, among other areas.
 
All of this should have been seized upon by India as a perfect opportunity to ramp up the US-India economic relationship, as well as enhance defence and security ties. While the latter has been in the works to some extent, alas, the economic relationship has taken several knocks recently, reflective of Trump’s willingness to use tariffs as an economic weapon, as well as Indian prevarication on its status as a developing country eligible for trade preferences.
 
Thus, after India’s botched efforts to reduce the cost of medical devices such as stents through draconian price controls—which hurt mostly US manufacturers selling in the Indian market—the US, in 2019, revoked India’s access to the Generalized System of Preferences (GSP) under rules established by the World Trade Organization. 
 
While the legality of this move could be challenged, as economist Pravin Krishna and I argued in these pages (“Trump’s trade tantrums and a delicate balancing act for India", 15 June 2019), the prudence of doing so remains doubtful, as this could perhaps provoke further US retaliation.
 
However, as we pointed out, inaction, or a weak response by India, would embolden Trump in any future negotiations with India, as he and his advisers, in particular the combative US trade representative (USTR) Robert Lighthizer, would sense a weakness in the Indian position and exploit it. 
 
This, unfortunately, is how matters appear to have played out. Thus, from an initially cavalier dismissal of the US revocation of the GSP by Indian commerce officials, New Delhi then did an about-face and has been negotiating for a restoration of these preferences. While these negotiations are shrouded in secrecy, India has reportedly been willing to make major concessions to the US on market access and other contentious issues.
Trump’s visit to India would have been the perfect occasion to unveil a US-India “mini trade deal" that restored India’s GSP access to the US market in return for comparable Indian concessions to the US. 
 
However, as we go to press, this appears highly unlikely. Even more problematic for India is that in advance of the visit, the USTR has declared India no longer a “developing" economy eligible for preferential treatment under US regulations on countervailing duties. 
 
There has been no public or official reaction by Indian authorities to this poke in the eye by the US. Worse still, several members of the governing party were revelling in the apparent fact that India had now “arrived" and was a “developed" economy. 
 
Additionally, at an operational level, while the USTR is empowered by the president, Indian commerce ministers typically function under a limited remit that requires them to refer important decisions to a higher authority. This is unhelpful in the cut and thrust of negotiations.
 
However, if not on this visit, then sometime soon, both sides will benefit from a trade accord being signed and thus will want to get a deal done. With the impeachment saga behind Trump and with a Phase 1 deal signed with China, the president would have the appetite to negotiate with India and gain additional political advantage in advance of his re-election bid later this year. 
 
India would need to make market access concessions to the US, both by reversing its retaliatory tariffs against earlier US tariffs on steel and aluminium, and perhaps by opening its market in new areas, such as automobiles.
 
US cars face cripplingly high tariffs in India, and few are seen on Indian roads. The US automobile industry lies at the heart of the US “rust belt", which helped Trump win the presidency in 2016. Strategic and targeted Indian concessions to the “big three" automakers of Detroit would go a long way to winning over Trump and restoring preferential Indian access to the US market.
 
Once the spectacle of the Trump visit is behind us, the hard work of wrapping up a trade deal will have to begin in earnest. It is in India’s enlightened self interest to make a deal with Trump and not to fumble the ball yet again.

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