US-India Trade Spats Imperil Bilateral Relations

The last-minute cancellation of US Secretary of Commerce Wilbur Ross's visit to India to discuss mounting bilateral trade tensions and other affairs has darkened clouds gathering over the US-India trade relationship worth about US$125 billion a year.

Ross was to co-chair the India-US CEO Forum with the Union Minister of Commerce and Industry Suresh Prabhu, accompanied by a delegation of 20 American CEOs. It is the second high-level visit from the US that has been canceled recently, amounting to bad optics for PM Narendra Modi's government, which is gearing up for a tightly contested election weeks from now. President Donald Trump was invited to be the chief guest at India’s Republic Day celebrations but didn't show up.

Supposedly the flight was canceled because of bad weather. The 81-year-old Ross’s office said he would participate “remotely.” However, no other flights were canceled out of Washington, DC that week, leading to suspicions that there were other reasons.

Sources told Asia Sentinel that the primary reason for Ross to cancel his visit was America’s decision to withdraw from the Generalized System of Preferences, which grants some Indian exports preferential or duty-free access into the American markets. The program gives 121 developing countries easier access to US consumers. India was the biggest beneficiary in 2017.

New Delhi has also been smarting under US tariffs on steel and aluminum implemented last year. India retaliated by announcing its own charges on US goods worth US$240 million but is yet to impose them.

Trade frictions between New Delhi and Washington have become increasingly strident and frequent under Trump's regime, say experts. These range from differences over market access, reciprocity in tariffs to trade deficit, investment rules and data localization to mention a few.

Adding to the woes is both nations' approach to bilateral trade and commerce. Trump's "Buy American, Hire American" strategy is at variance with Modi's "Make in India" campaign which his nationalist government is keen to pursue in an election year.

Trump, on the contrary, is trying to whittle down America's trade deficit to woo his domestic constituency. The president is especially irked by the current India-US trade imbalance. India exported goods worth more than US$50 billion to the United States last year while importing US products only worth about US$30 billion, according to the US Census Bureau.

Trump has also been a vociferous critic of Indian duties on US goods, particularly on products like Harley-Davidson motorcycles. Last month, he condemned India's 150 percent tariff on imported whiskey. "India is a very high tariff. They charge us a lot of tariffs," he said at a White House event.

These skirmishes come at a sensitive time, with American retailing giants Walmart and Amazon already reeling from massive changes in India's FDI standards for the e-commerce segment.

Washington was keen for India make changes to the country's e-commerce policy favorable to the two retailers. Walmart is the majority stakeholder in the e-retail major Flipkart. Instead, the new norms, which came into effect on February 1, prohibit multinational e-tailers from selling products of companies in which they have stakes.

The new regulations also prohibit these online retailers from mandating companies to sell their products exclusively on their platforms. They note that the online retail firms will not directly or indirectly influence sale price of goods and services and will maintain a level-playing field.

US social media pioneers Facebook and Twitter too, are bearing the brunt of inconsistent policies in what is perhaps the world’s most important emerging technology market. The Modi government is targeting Facebook Inc.’s WhatsApp, the popular messaging service increasingly important to its parent’s bottom line.

Alleging that the service has been used to incite violence and spread pornography, the government is pressing WhatsApp to allow more official oversight of online discussions, even if that means giving officials access to protected, or encrypted, messages. Facebook has refused, risking punitive measures or even the possibility of a shutdown in its biggest market.

To resolve many of these issues, the Modi government had proposed working on a US-India trade pact. But the concept is stalled. Experts say it is time to initiate action on this front to prevent further potential trade conflicts.

"Trade disputes are hardly new in Indo-US relations. Such challenges bedevil any two nations that have a substantial stake in each other’s offerings," said economist Pradip Bandekar. He cites rapidly changing global trade dynamics and a fraught domestic environment in both countries as the primary reason for mounting differences. He recommends that "both Modi and Trump cast a fresh look at both new and longstanding issues."

The value of the trade relationship between the two countries and its huge potential, said Ramesh Chhabra, senior counsel of a Delhi-based think tank., “requires prudent thinking on both sides and not retaliatory actions."

For India, he said, the US is probably the most important trade partner today while India's enhanced standing as the world’s third-largest economy and the fastest growing emerging one is worthy of US respect. "It should, therefore, be the highest political priority for both parties to turn this trade relationship into a deeper and more sustainable one," Chhabra said.

Just as the US is concerned about regulations that undermine US corporate interests, India too is struggling to put in place a whole set of new norms regarding the digital economy, ranging from data privacy to payments structures. Adding to Delhi's woes are arbitrary decisions by domestic regulators who are unmindful of India’s multilateral trade obligations, complicated by the ruling establishment's political unwillingness to take on this powerful lobby in an election year.

The United States may be reluctant to spark another trade war after months of friction – and tariffs worth billions of dollars – with China. Modi too has worked vigorously to bolster the Indo-US political and strategic relationship on trade and other issues. Wrecking this vital relationship is the furthest from his mind, especially with a recalcitrant Pakistan to his left and an antagonistic China to the right. Besides, he'd rather focus his energies presently on battling an anti-incumbency factor at home and an increasingly aggressive Opposition.

The rapidly changing global geopolitical architecture and trading order requires that both Washington and Delhi respond inventively to unprecedented and emerging bilateral trade challenges. The need for political reassurance and confidence building between the two has never been greater.

Neeta Lal, a Delhi-based editor and journalist and longtime Asia Sentinel correspondent, tweets @Neeta_com