ANALYSIS . Indo-US economic ties to stay on course whether America votes blue or red

The results of the US Presidential elections, while keenly watched across India, may not hugely impact bilateral economic relations.

India is too big a market to be ignored by either the Democrats or the Republicans and both would favour greater trade and investment ties to enhance market access. At the same time, it has also been amply demonstrated over the last decade that both are capable of acting against India’s interest to serve their own. So India would need to keep watching its steps irrespective of who is in power.

US President Donald Trump started on a belligerent note with India soon after assuming office in January 2017 by identifying it as one of the countries to be investigated for having a trade surplus with the US.

Trade-related consequences

India tried hard to explain that its export surplus, which was around $24 billion per annum at that time (and has somewhat declined since then) , was due to export of items used as inputs by the American industry. But the Trump administration wouldn’t be placated.

The US then went ahead and imposed penal tariffs on imports of steel and aluminium from India and some other countries such as China, Japan, South Korea and the EU on the ground of national security. It ignored the fact that India’s exports were just a fraction of what the others, especially China, were exporting.

At the same time, the Democrats under Barack Obama, also, took a number of significant trade actions against India. In fact, a couple of India’s most significant losses against the US at the World Trade Organisation, including its measures restricting American poultry imports and mandating local sourcing for solar projects, happened during the Obama administration.

That said, Trump’s actions against India have been much more erratic as they have been mostly unilateral and outside the multilateral trade process of the World Trade Organisation. He also withdrew the Generalised System of Preferences (GSP) scheme, in place for decades, that allowed duty free entry for a number of India’s exports. But a part of it could also be attributed to the US President’s personality and mode of operations as he has treated many other countries in the same arbitrary way.

The trade war with China, initiated by Trump, was expected to result in gains for India as both China and the US imposed tariff walls against each other. But most of the business lost by the two countries did not come to India but went to South East Asian nations such as Vietnam and Thailand. So even if a Democratic government lessens the heat on China in the future, it would not affect India much as it is yet to benefit from the trade battle.

Tightening H1B norms

A point against the Trump administration could be the recent tightening of screws on H1B visas used extensively by the Indian IT industry operating in the country. Not only have visa costs for the Indian industry gone up, the tightening of wage-based entry barriers is set to make the skilled visas dearer.

But here, one must recall that steep increase in H1B and L1 visa fees were also brought about by Obama for funding his health care programme. Despite several pleas from India, they weren’t revised.

Targeting Indian skilled workers in the US when it suits the country’s interest is something that both the Republicans and Democrats engage in, and it is India which needs to adeptly handle the situation.

Free trade pacts

One may be tempted to argue in favour of a continuation of the Trump regime by citing the free trade agreement being worked out between the two countries which would also include liberalisation of trade in energy, including oil and gas.

But the argument wouldn’t have much merit. A greater scrutiny would reveal that the free trade deal could not be solemnised, despite great efforts from both sides, as the US demand in sensitive areas such as agriculture, medical equipment, e-commerce and intellectual property were difficult to meet for India. No matter, whether the Democrats are in power or the Republicans, the US is not likely to lower its basic demands making a pact extremely difficult.

The US would continue to be amongst India’s top-most trading partners and export destinations irrespective of the US elections and American businesses would keep angling for a larger bite of the growing Indian market. Therefore, it is logical to assume that the two countries would stay engaged at the highest level seeking greater economic benefits whether it is Joe Biden or Trump at the helm.

So, when Indians sit and evaluate whether a Democratic or a Republican regime in the US would be better for India, other considerations such as political, social and humanitarian may be of greater consequence than economic.

COMMENT NOW