Indo-US ties: Challenges on economic front

Indo-US ties: Challenges on economic front

Prime Minister Narendra Modi with Joe Biden. PM Modi tweeted this picture to congratulate Biden on becoming the 46th President of the United States. Credit: Twitter/@narendramodi

As President-elect Joe Biden makes his first moves toward the White House without garnering a concession from the incumbent, it is time to assess the real import of the choice that American voters have made. This choice, and the very nature of it, will have an impact on how the global order shapes up in the coming years. For all the talk of American decline, the way most of the world has been obsessed with the Trump versus Biden contest underscores the influence America continues to wield around the globe. In fact, China and Russia, two nations who never get tired of telling the world that the US is no longer the world’s superpower, waited and watched till the last votes were counted to officially congratulate the victor!

The global economic order has undergone a significant transformation in the last few years. The Trump presidency and the Covid-19 pandemic have accentuated certain trends, with nations moving towards de-globalisation, greater protectionism and attempts toward economic decoupling from China.  Trump, in particular, used tariffs liberally to challenge what he considered unfair trade advantages. For the leader of a nation that laid the foundation of modern-day economic globalisation, he was unapologetic in talking about ‘American First.’ He was derisive of multilateral bodies like the World Trade Organisation (WTO) and withdrew from the Trans-Pacific Partnership (TPP) Agreement, covering 40% of the global economy, in 2017.

By instinct, Biden is an internationalist who believes in the value of free trade and multilateralism. But the US of today is not the America of the 1990s, the high noon of liberal internationalism. While Trump may have lost, Trumpism is alive and well, with almost half of American voters continuing to repose their faith in Trump. The political import of this message would not be lost on Biden, especially as the US Senate may remain in Republican hands. And Biden was signaling even during his campaign that he was listening to the message delivered by American voters when they dashed Hillary Clinton’s chances for the presidency. As a result, he has been talking of “Buy American”, of penalising companies that move jobs offshore, and of taking a tough stand against China.

A Biden presidency will certainly see the US rejoining multilateral frameworks. It will also entail reaching out to American allies and working closely with them to ensure that China is challenged wherever possible. But it’s very likely that in the end, it might all just be about style while substantively the challenges remain the same.

This is especially true of a country like India, which has faced trade challenges vis-à-vis the US much before Trump was anywhere on the scene. Trump was more upfront about it and publicly challenged India by terminating India’s designation as a beneficiary developing nation under the Generalised System of Preferences (GSP) trade programme, arguing that New Delhi had not assured the US that it will provide “equitable and reasonable access” to its markets. The Trump administration also levied tariffs on Indian steel and aluminium, to which India retaliated with its own set of tariffs.

For Biden, these changes would be easy to make in order to revert to status quo ante, but it also now becomes almost impossible to conclude a mini trade deal, which the two nations had been negotiating for months and were reportedly close to finalising it. A Biden administration will reopen the negotiations and would like to make them much broader, which will certainly lead to them going nowhere for the foreseeable future.

Where India would certainly benefit is by the US under Biden becoming a champion of economic globalisation once again. India has been a major beneficiary of the global economic order and if it gets frayed, then for an emerging economic power, challenges can only surmount. And if Biden can bring the US economy back on track, that’s certainly good news for India. The two major democracies of the world share a robust economic relationship, with the US being India’s top trading partner in goods and services as well as the fifth biggest source of FDI.

More significantly, India enjoys a trade surplus with the US, albeit one that has been shrinking in recent years. India has been working towards this by increasing oil and gas imports from the US, thereby assuring Washington that New Delhi, too, sees value in a ‘balanced’ trade relationship. But while Biden will challenge China on trade in concert with other powers, India will have to factor in the challenge that will emerge once again if the US decides to rejoin the TPP.

A Biden presidency, which is likely to be more predictable, works well for India in charting out a strategic response to the challenges posed by the US on trade and economic front. And given the economic complementarities, a US which can get its economic groove back helps India as well by stimulating global demand. But whether a Biden presidency heralds a long-term shift in American economic policy is an issue where caution is perhaps the best response at the moment.

On trade and immigration, it is more likely that while stylistically, a Biden presidency will be much different from Trump’s, substantively there is likely to be more continuity than change, given the underlying shifts in the American political landscape. The message from the American voter to its political class is quite clear: American policymakers should first look at their domestic challenges and adopt policies to respond to them adequately before turning their attention at remaking the world in America’s image. The US is divided and the Democratic Party that Biden leads now is fractured as well. A Biden presidency will first have to heal American divisions before it can meaningfully hope to chart out an expansive global agenda.

(The writer is Director, Studies, at Observer Research Foundation, New Delhi)