In a world where trade success will be built not on rules but on relationships, India has distinct advantages
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A broadside against trade was central to Donald Trump’s presidential campaign.
At Davos in January, Prime Minister Narendra Modi delivered a message to US President Donald Trump: “Trade protectionism is worrisome.” Modi was prescient. The second year of the American presidency has begun with a series of trade bangs.
In January, the Trump administration declared tariffs on washing machines and solar panels—including those from India. Last month, the president invoked a little-used national security exception to justify 25% tariffs on steel and 10% on aluminium imports. India was included.
Two weeks back, Washington filed a complaint at the World Trade Organization (WTO)—the first WTO action of this administration—over several export subsidy programmes in India. These include the Merchandise Exports from India Scheme, the Export Oriented Units Scheme, the Electronics Hardware Technology Parks Scheme, Special Economic Zones, and the Export Promotion Capital Goods Scheme. Given these actions and an apparent trade war between the US and China, Indians will ask themselves “what’s next for India?”
Lessons from Washington
Trump is deadly serious about upending the post-war international consensus on free trade. He also thinks rules get in his way. He seeks to replace the rules-based trade order with an “America First” framework.
A broadside against trade was central to the Trump presidential campaign. In office, his rhetoric has escalated. The North American Free Trade Agreement (Nafta) is “the worst trade deal in the history of the world”, along with the Trans-Pacific Partnership, “another disaster done and pushed by special interests who want to rape our country”. Germany’s trade policy is “bad, very bad”, and so are South Korea’s and China’s. India hasn’t been spared. The president complained that Harley-Davidson motorcycles were met with a 100% tax. He reprised a call with Modi: “He said, ‘We are lowering it to 50%’ and I said, ‘Ok, but so far we’re getting nothing.’ So we get nothing, he gets 50% and they think they’re doing us a favour. That’s not a favour.”
Trump has held anti-trade views for decades. In 1987, he spent almost $100,000 to run full-page ads in The New York Times, The Washington Post and The Boston Globe attacking America’s allies and the way they took advantage of the US, including “huge deficits”. These ideas would fit comfortably into a Trump speech today. His long-held trade and immigration views are part and parcel of his “America First” policy. He sees the world as a competition for advantage, to which America will bring its “unmatched military, political, economic, cultural and moral strength”, as former national security adviser H.R. McMaster and former national economic council chair Gary Cohn wrote last year. As Trump pushes for “America First”, he seeks to replace the rules-based trading order with one where he is able to act without restraint and with maximum discretion.
Tariffs and negotiations show his preferred approach
The past one month has given a preview into Trump’s preferred approach. He imposed the steel and aluminium tariffs on vague “national security” terms, while noting that he would “(show) great flexibility and cooperation toward those that really are friends of ours, both on a trade basis and a military basis”. In the final order, Trump did temporarily exempt Canada, Mexico, the European Union countries, Argentina, Brazil, Australia and South Korea—but only after most of those countries’ leaders telephoned him to make their case.
The president used the tariffs to reset the bargaining balance. Having created a new negotiating objective—tariff exemption—he invited the leaders of the world to ask for a favour, which he linked to other negotiations (like Nafta) and granted, or not, based on his personal relationships. India was not exempted. Modi chose to play this one quietly. He did not telephone the president. The government of India instead filed a formal exemption request.
Where does this leave India? In a world where trade success will be built not on rules, but, rather, on relationships, India has distinct advantages. Modi has devoted the past year to building a personal relationship with President Trump. His visit to Washington last year was a success, measured in hugs. There appears to be good chemistry between them, and Trump readily accepted an invitation to visit India.
Modi investing in personal relationships is a great strength for India. Indeed, the politics of the personal has been Modi’s style from the beginning. In the months to come, Modi and Trump will work to set the stage for the next step in our nations’ developing partnership. The test will come when President Trump asks Modi how he plans to reduce the $30 billion trade imbalance between the countries.
The world has benefited for 70 years from an international trading system based on rules and broad multilateral agreements. So have India and other developing countries, where hundreds of millions have been lifted out of poverty.
But if the world is moving to a Trump-based system, and if charm, relationships, and astute bargaining are the keys to success in that system—I would never bet against India.