These days, the relationship between the United States and India runs on two distinct tracks. On matters of defense and geopolitics, the world’s largest democracies are drawing ever closer together. But on matters of trade and economics, they squabble like siblings.
Lately, the squabbling has taken a turn for the worse.
After months of discussions, an attempt to forge a deal to resolve an existing set of trade frictions has broken down. Meanwhile, India has moved ahead with a series of policies on data storage, e-commerce and regulation of online content that have raised hackles among U.S. businesses. And on Tuesday, national security adviser John Bolton warned countries such as India against supporting the Venezuelan regime of President Nicolas Maduro by buying oil from that country.
India is still smarting from the Trump administration’s imposition of steel and aluminum tariffs and its move to tighten the rules for H-1B visas, which are granted primarily to Indian tech workers.
Neither country is in the mood to compromise. India’s elections are expected to begin in April, and Prime Minister Narendra Modi has struck a protectionist stance as he seeks a second term. The Trump administration continues to focus on eliminating the US trade deficit, which it says stems from unfair practices by other countries, including India.
India is still far lower on the Trump administration’s priority list for trade punishment than, say, China, or even Canada. But now the United States is reportedly considering withdrawing India’s current privileges under the Generalized System of Preferences, or GSP, a trade regime that allows billions of dollars in Indian goods to enter the United States duty-free.
Into this picture comes Commerce Secretary Wilbur Ross, who is arriving in New Delhi for his first official visit to India. On Thursday, he is scheduled to confer with his Indian counterpart. Accompanying Ross is a contingent of 20 chief executives of American firms, who will participate in a forum with Indian business leaders. They are likely to underline the potential to boost trade in areas such as energy and aviation.
“These are important dialogues, and it’s important to keep them going even though there may be times when significant progress does not seem likely,” said Nisha Biswal, president of the U.S.-India Business Council and a former senior State Department official.
Biswal said part of the challenge on the economic side of the relationship is that India and the United States do not have a broader trade or investment treaty that can frame discussions. “So all of these issues become much more entrenched,” she said. “They tend to linger; they tend to fester.”
In recent months, the United States and India have tried to reach a “fairly modest” agreement to resolve frictions over trade in medical devices, agricultural goods and products such as mobile phones, said Biswal. The failure to conclude such an agreement was “disappointing,” she said.
Also disappointing from the US perspective was India’s surprise announcement in late December revamping the rules for e-commerce marketplaces in the country. The move was aimed squarely at Amazon.com and Walmart, which have made significant investments in India. (Amazon founder Jeff Bezos owns The Washington Post.)
With tensions multiplying, the notion that the United States could take a punitive step such as revoking India’s trade concessions is “a very real possibility right now,” said Richard Rossow, senior adviser at the Center for Strategic and International Studies in Washington.
The only reason the Trump administration would not take such a measure, he said, is that it might “tilt the plate and make it way too wobbly to make progress in other areas” – for instance, military cooperation between the two countries.
Withdrawing India’s trade privileges under the GSP regime would be a “really unfair reaction” by the United States, said Navtej Sarna, who recently retired as India’s ambassador in Washington.
“We have some new policy issues on which dialogue is needed,” including e-commerce, he said. But the United States also needs to understand what is driving Indian policy decisions, including a fear that companies such as Amazon and Walmart can “swallow domestic markets completely,” Sarna said.
Diplomats and trade experts point out that despite the areas of discord, trade between United States and India continues to grow. A trade relationship that was formerly described as “flat as a chapati” – India’s ubiquitous round flatbread – has risen to more $80 billion a year in goods alone. The current frictions can be seen as a consequence of that progress.
“Trade becomes irritating when it becomes important,” said Biswal.