Opportunity Knocks: India Must Act Swiftly to Leverage Trump’s Trade Obsession
Donald Trump’s Return to the White House: A Challenge and an Opportunity for India
It might be tempting to assume that Donald Trump’s return to the White House augurs stability in US-India relations. After all, there is strong bipartisan support in Washington for deeper ties, particularly as a counterbalance to China’s growing economic and geopolitical influence. Not so fast.
To be sure, the strategic partnership between the US and India offers several mutual benefits. Unlike other partners, India is not seeking US financial or military aid. And beyond their personal rapport, there is also a clear ideological alignment between Trump’s ‘Make America Great Again’ agenda and Indian prime minister Narendra Modi’s Hindu nationalism.
Risks and Opportunities in a Trump Second Term
Despite this, Trump’s second term could pose significant risks to the bilateral relationship, owing to two Indian vulnerabilities. First, although Trump’s transactional approach to politics makes him unpredictable, his support for using tariffs to reduce America’s trade deficit has been steadfast. His recent pledge to impose a 25% tariff on all products coming into the US from Canada and Mexico, as well as an additional 10% tariff on all Chinese imports, is a prime example.
This spells trouble for India, which maintains some of the world’s highest tariffs and has a growing trade surplus with the US (nearly US$46 billion in 2022). Trump’s trade czar, Robert Lighthizer, has already labelled India the world’s “most protectionist” country, suggesting that heightened trade tensions are all but inevitable.
Chinese Expansionism and India’s Vulnerability
India’s second vulnerability is Chinese expansionism. Although Trump views China’s economy and trade practices as existential threats, his concerns do not extend to its military aggression. The security partnership between India and the US, rooted in a shared interest in countering China’s territorial ambitions, cannot be taken for granted under Trump.
While Marco Rubio and Mike Waltz – Trump’s picks for secretary of state and national security adviser, respectively – are staunch China hawks, the president-elect’s own instincts lean heavily towards non-interventionism. More isolationist than interventionist, Trump has often rejected the establishment consensus on the need to maintain Pax Americana.
India’s Strategy for Managing Trump’s Trade Obsession
Given these risks, India must adopt a proactive approach to mitigate the negative effects of Trump’s trade policies. One option is to adopt a cautious, wait-and-see strategy, addressing Trump’s demands by selectively reducing tariffs, removing trade barriers in key sectors, and increasing military purchases. A more cynical strategy would involve leveraging Trump’s personal business interests by steering investments towards his family’s hotels and real-estate ventures.
A more principled response would be to initiate talks with the US on a bilateral deal or free-trade agreement (FTA). India stands to gain from trade liberalisation. Its garment and footwear industries, for example, are at a significant disadvantage compared to Vietnamese competitors, which benefit from FTAs, and several African countries that enjoy duty-free access under the US African Growth and Opportunity Act.
Conclusion
While Trump’s trade policies pose significant challenges, they also offer India a rare opportunity to attract foreign investment and strengthen its ties with the US. To capitalize on this opportunity, India must adopt a forward-looking approach, focusing on market liberalisation, reduced tariffs, and increased economic cooperation with the US.
FAQs
What are the potential risks and opportunities for India in Trump’s second term?
Risks include heightened trade tensions, reduced access to the US market, and reduced US support for India’s security interests. Opportunities include increased foreign investment, enhanced economic cooperation, and improved relations with the US.
What are the key factors driving Trump’s trade policies?
Trump’s support for tariffs is driven by a desire to reduce America’s trade deficit and protect American industries. His anti-Chinese trade rhetoric is a key aspect of his nationalist agenda.
How can India mitigate the negative effects of Trump’s trade policies?
India can adopt a cautious approach, selectively reducing tariffs and removing trade barriers, while also initiating talks with the US on a bilateral FTA.