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The elusive trade deal

Between the US President Donald Trump and Prime Minister Narendra Modi, the former seems to have scored higher as a salesman. In his 36 hour visit to India, he returned with a Rs 21,000 crore order for helicopter purchases from the US, succeeded in his focus on bridging the US trade gap with India through larger energy exports and inviting top businessmen to invest billions in his country assuring them of the prospects for tax cuts and regulation cuts. The elusive trade deal did not materialise during the visit.

There was no dearth of hugs, namaste, and other optics. Our marketeer par excellence who excels in presenting such grand receptions did this to even greater effect. Remember Ahmedabad spruced up for visits of Japanese Prime Minister Shinzo Abe and Chinese President Xi Jinping with decorated swings?

Trump was quite focused and maintained his characteristic bluntness by loud complaints on India’s tariffs among the highest, terming these ‘not fair.’ He is aware of the damage caused to his own country by a totally free trade that had killed many American industries over the years. eg. textiles, steel, aluminium, electrical appliances, electronic goods impacted even seriously it is great automobile companies. His imposing tariffs on steel and aluminium, for instance, has revived these industries. Significantly, the Tatas, the Birlas and the Mittals have been making more investments in the US than in India in a few years post-2000!

Huge deficits with China…

India is in a much lower state of economic development and needs protection from aggressive multinationals even more than the US. If the US is concerned over the huge trade deficit and is keen to bridge this through tariffs, there is an equal, if not greater need for India at her current stage of development needing such protection. Like the US India has also been suffering huge deficits in trade with China and several other countries.

The World Trade Organisation (WTO) has been offering a measure of protection in regard to tariffs. This seemed to have worked well for over a decade when the global economy was on a continuous growth path. The champion of free trade and multilateralism for decades post the Second World War, the US has been turning protective after Trump took over. For the US, WTO seems not quite relevant and the organisation has been rendered ineffective.

So, it will make for a lot of sense to step up efforts on bilateral agreements. Modi, after all the hugs and howdys, should have focused on such a bilateral agreement that would target a much larger quantum of bilateral trade. In this, there can be a lot of giving and take. A tall business leader made this cryptic remark: “I don’t know why Trump keeps harping about Harley Davidson. Even at 0 per cent duty, Indians will find it too expensive. However, if it is made universal it will only open up other global motorcycle manufacturers clamouring for it.” This will, of course, impact severely the Indian industry. We are only too familiar with such carnage caused by cheap Chinese imports when India opened up industries such as calcium carbide, antibiotics…

It should be possible for India through bilateral tariff agreements to permit Harley Davidson or American almonds and walnuts with reciprocal concessions for India for textiles, garments, leather goods and a vast range of consumer electric appliances and electronic goods. Remember China building large trade volumes in the initial stages of her development by massive exports of such less sophisticated consumer goods?

There is a lot to be gained by stepping up collaboration in hi-tech products and for project imports. The Indian diaspora in the US has been excelling in various fields. At Silicon Valley and elsewhere start-ups find increasing dominance by NRIs. As outlined in our cover feature there is immense potential for joint efforts to harness nuclear power. Agriculture, infrastructure, space, and digital applications offer huge opportunities to work together.

Trump already believes India as having more people than any other country ‘a little bit more than China.’ He and his country should only be too happy to have access to these large numbers for marketing products and services.
Prime Minister Modi and his team could sharpen the focus for building such bilateral deals; more importantly to work also on building consensus across both the US’ Republican and Democratic parties.

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