United States President Donald Trump is obsessed with trade tariffs. He misses no opportunity to upbraid China, India, Mexico and even the European Union (EU) on the high tariffs they impose on US products.
He is especially incensed by India’s 50 per cent import duty on Harley Davidson motorcycles, which have an infinitesimal market share in India. Yet for Trump, it is a symbol of how other countries “rip off America”, as he said in a recent television interview. Trump has used tariff threats to bully Mexico into sending 6,000 Mexican troops to stop refugees fleeing Central American countries like El Salvador and Honduras before they reach the US-Mexico border.
Trump has, meanwhile, held out a threat to slap 25 per cent tariffs on Chinese exports to the US valued at $300 billion in addition to the tariffs already in place on $250 billion worth of Chinese exports. Trump is expected to meet Chinese President Xi Jinping at the G20 Summit in Osaka, Japan, on June 28-29 to thrash out the issues in the escalating US-China trade war.
Where does India fit in? India-US trade is a fraction of China-US trade. China’s trade surplus with the US that sends Trump into near-delirium was $419.2 billion in 2018. India’s trade surplus with the US in 2018 was a relatively puny $24.2 billion.
“Tariffs are a beautiful thing,” Trump told CNBC’s Squawk Box show on June 10, 2019. But so far, the tariffs Trump has imposed on China aren’t working. Latest data shows China’s trade surplus with the US trade climbed by $2.1 billion to $29.2 billion for the month of April 2019.
At the G20 summit, Prime Minister Narendra Modi is scheduled to have a short bilateral meeting with Trump. Trade, technology and defence will dominate the conversation. Trump wants India to cut import duties on a swathe of goods, including medical stents whose suppliers have a strong lobby in the US.
Trump will apply additional pressure on Modi to stop India buying Russia’s S-400 anti-missile system. The US has already told NATO ally Turkey, which is also buying the S-400, that Washington will no longer support the advanced F-35 fighter jet programme in Turkey.
Modi though has several aces up his sleeve and must tackle Trump’s tactics with a few of his own. Strategically, the US needs India to counter China’s emergence as the world’s pre-eminent superpower over the next two decades. India is the only country with a large economy and military that can help Washington contain China in the Indo-Pacific.
As important as strategy is psychology. Trump is a megalomaniac. He relishes praise. But he also respects strong leaders. One of the reasons Trump constantly praises Xi Jinping whilst decrying China is the strongman image the Chinese leader projects. The last thing Modi should, therefore, do at the G20 summit in Osaka next week is fawn over Trump in the hope that his administration will soften its stand over trade tariffs and the S-400. Far better to adopt Xi’s playbook with Trump: be friendly, but firm. Xi hasn’t conceded an inch to Trump on trade or technology but has kept the dialogue going. By slapping tariffs last week on US exports covering 28 items, India has made a good beginning.
India’s consumer market is the world’s second largest. India also has the second highest percentage of Internet users (12 per cent) in the world, behind China (21 per cent) but ahead of the US (8 per cent). Washington does have legitimate complaints on India’s restrictive laws on e-commerce firms. These and other trade issues will need to be sorted out by the new team in the commerce and finance ministries.
As commerce and industry minister, Piyush Goyal is well suited to negotiate knotty trade disputes with the US. The MoS in the commerce ministry, Hardip Singh Puri, is another experienced negotiator, having spent several years as India’s permanent representative at the United Nations in New York.
Finance Minister Nirmala Sitharaman’s stint as defence minister will prove useful while negotiating the difficult terrain over India’s commitment to buy the S-400. Advance payment has already been made to Russia and cancelling the contract is neither feasible nor desirable. India needs to maintain its links with Russian defence contractors to avoid over-dependence on American military hardware.
India’s trump card is the fact that both the US and China need it in their corner. Washington knows that a China-Russia axis can pose a threat to the Western alliance. With the European Union sclerotic and Britain enervated by Brexit, the US has few allies apart from India with both large economies and militaries.
China, for its part, needs to keep India onside as an antidote to the US bullying. The Wuhan spirit and Xi’s likely return trip to Modi’s constituency Varanasi in October this year is aimed at keeping India in good humour and as far out of Washington’s orbit of influence as possible.
Modi will this have to play his cards deftly in Osaka. It is likely to be another decade before India’s economic and military heft reaches a level that makes it part of an emerging Isosceles triangle with the US and China. Till then, stay flexible, but on core issues, resolute as Trump lumbers through the G20 summit in Japan next week.