India-US trade deal is like a ‘Double Dutch’ game

US presidential visit to India, not accompanied by a trade deal, is like a 'khokha' in the stock market parlance. It is like a 'kofta' without 'malai' in a foodie's language.

Both the US and India are interested in the presidential visit. Donald Trump, the Republican candidate in the forthcoming US presidential elections, views his India visit as part of his electioneering campaign to sway the Indian-American voters.

India is interested in getting a presidential visit to change the mood of the nation. When it comes to a trade deal between India and the US, it has become like a 'Double Dutch' game. A trade deal has become like a game of two long jump ropes turning in opposite directions, thrown at India by the US. Whether the Indian negotiators can successfully jump these ropes is to be seen. Negotiations are happening between India and the US for the last two years to finalise a trade deal.

From the perspective of the America First policy of Donald Trump, trade with every other nation is a gain for that nation and a loss for the US. Trump wants to squeeze the trading partners as much as possible and give them 'take it or leave it' trade deals. He wants US trade deficit with India to be narrowed. He finds a sensible 50 per cent tariff being imposed by India on high-end luxury Harley-Davidson motorcycles costing between Rs 10 and 50 lakh each as “still too high and unacceptable”, even though India has reduced the tariff from 75 per cent to 50 per cent.

It was a fair trade practice for the US to invoke the all-embracing National Security clause under Section 232 of the Trade Expansion Act of 1962, to impose a 25 per cent punitive tariff on steel imports. But it was an “unfair trade practice” for India to impose retaliatory tariffs on US farm products like almonds, walnuts, cashews, apples and peas.

US domestic politics may have also entered the trade deal with the Trump team trying to push farm products that would help farmers in ‘swing states’ with an eye on the 2020 US presidential elections. Hence, the US is pushing India hard to roll back the retaliatory tariffs imposed on US farm products and to open up India's dairy and hatchery sectors for US exporters.

India is the eleventh largest trade-surplus nation with the US, running a trade surplus of about $23 billion. Under previous regimes, bilateral trade deficit was not a major concern for the US. But under the protectionist trade policies of the Trump administration, bilateral trade deficit has come under closer scrutiny.

Under pressure from the US to narrow the trade gap, India has reportedly agreed to import $6.5 billion worth of US goods in exchange for restoration of Generalised System of Preference (GSP) privileges. The idea was to increase import of US oil and gas, but that didn’t work because US officials wanted to dictate the products on which India should spend the $6.5 billion. The flurry of activity taking place in India in the last few days to 'ready' some major defence deals may be a middle path to increase US imports by the agreed $6.5 billion.

In the last six years, the Narendra Modi government has been conservative in trade liberalisation. The most recent example is India’s refusal to join the Regional Comprehensive Economic Partnership (RCEP). A roll back of retaliatory tariffs on US farm products by India (without US rolling back its punitive tariffs on steel and aluminium) or a further reduction in the moderate tariff rate on the Harley-Davidson luxury bikes may not sync well with the trade policies of India.

If the Narendra Modi government blinks and gives in to the many coercive demands of the Trump administration, a ‘big trade deal’ between India and US may take place. Otherwise, President Trump may ‘save it for a later date’. But any trade deal finalised without restoration of Generalised System of Preference (GSP) benefits or increase in US investments and transfer of technology is not a win for India.

(V Venkateswara Rao is a retired corporate professional and a freelance writer)