India-US Trade Deal: Break the Impasse

The India-US trade deal negotiations remain in limbo after President Donald Trump imposed a 50% tariff rate on India – citing India’s purchases of Russian oil for one half of it – and declared a stop to trade negotiations “until we get it resolved.” In response, Prime Minister Narendra Modi has asserted that India would not compromise the interests of its farmers, adding for good measure “I know I’ll have to pay a price personally. But I’m ready for it.”

Unconcerned, dismissive, “ball is in India’s court” statement from Trump. Heroic, “won’t bend” statement from Modi. Both sides have signaled “no compromise” and it is not known when they will restart talks again. Yet, parse the statements a bit, and optimists would see that neither side has fully shut the door on trade talks yet.

The “it” in Trump’s statement referred not to the whole trade deal, but to resolving the issue of India’s Russian oil purchases. If that bit gets resolved in some way – if Russian President Vladimir Putin agrees to a ceasefire when he meets Trump on August 15; if India offers a roadmap to stopping Russian oil purchases; or if Trump realizes that it may suit US interest to let India continue to buy Russian oil and keep global oil prices from rising -- talks could still pick up to resolve core trade-related issues. US negotiators were earlier set to arrive in India on August 25.

Modi, on the other hand, limited his assertion to the matter of opening up agri and dairy markets to US imports, leaving out the Russia oil issue. It has also been reported that India  is quietly drawing down Russian oil purchases.

Meanwhile, India’s top leaders – NSA Ajit Doval, External Affairs Minister S Jaishankar and PM Modi himself – have been meeting or talking to Russian and Chinese leaders, interactions that will continue over the next fortnight, ostensibly sending a message to Washington. India and China are in talks for Beijing to lift restrictions on exports of rare earths, fertilizers and chemicals to India, signaling a strategic thaw between the two countries.

Trump has brought matters to a head. It’s India’s call on whether to seek a restart of negotiations or not.

What are India’s Options?

• Wait to see how the Trump-Putin talks go, and if the pressure on India lifts off without Delhi having to publicly concede on Russian oil.
• Concede on the Russian oil issue and offer concessions on core trade issues – agri-dairy sectors, certain non-trade barriers, etc -- to obtain a deal, even if one-sided -- as the EU, Japan, Korea and others have done.
• Walk away from the trade deal talks, leaving the door open to resuming it once Trump pipes down.
• PM Modi could call up Trump (or meet him in person during the UNGA in late September) to break the impasse.
• Gather Brazil, and possibly Canada, into a bloc to push back against Trump’s unfair trade deals (and reach out to the EU, Japan and South Korea, too).
•  Abandon the bilateral dealmaking and proclaim a return to multilateralism and the WTO (or a new world trade body), either alone or as a bloc.

Things India Must Think About

• A balanced bilateral trade agreement with the US (and EU) is key to India stepping up manufacturing, exports and overall economic growth.
• A good trade deal with the US is geopolitically important.
• It would smooth access to technology and capital.
• The world is splitting into US and China camps. The China camp is not an option for India. And not being in either camp could mean being crushed from both sides.
•  A goal of closer ties with the US is also to prevent a US-China G2 from developing, a not-so-negligible prospect under Trump.
• A return to trade multilateralism looks almost impossible, unless the EU and China also agree to go down that path. The EU has vaguely proposed a new WTO, based on the bloc’s principles, but it is unlikely to pursue it. China is keen on an exclusive deal with the US that puts the two on an equal pedestal.

Deal or No-Deal

• A deal could help convince Trump to lower the tariff rate to keep India competitive against China, etc. A no-deal would make Indian exports to the US uncompetitive, especially against India’s Asian competitors.
•  A deal could help head off potential high tariffs on pharma and electronics. A no-deal would almost certainly harm these critical export sectors.
• A deal could smooth access to American capital and technology. A no-deal will likely preclude access to them, at least during Trump’s term.
• A deal is necessary to raise India-US trade to $500 billion, necessary for ‘Viksit Bharat’ and closer India-US strategic ties. A no-deal would cause the two countries to grow apart, with economic and geopolitical consequences.

What could India Offer Now?

• Pull back from Russian oil purchases for now. It won’t hurt India much -- the price difference between open market and Russia’s sanctioned oil has narrowed, and inflation is low in India currently.
• Promise to invest a few billion dollars in the US (The EU, Japan and South Korea promised $600 billion, $550 billion and $350 billion respectively).
• Promise to buy more US energy and military equipment.
• Open up multi-brand retail (minus food) in lieu of access to agri and dairy markets.
•  Open some access to agri-dairy sector, but with safeguards (quotas, warning labels for GMO and dairy products to take account of Indian regulations and sensitivities).