| UPSC Relevance GS Paper 2: International Relations Bilateral relations: India-U.S. trade and strategic ties |
Why in News
Former U.S. President Donald Trump, in a recent speech, called India’s economy “dead,” hinting at potential trade penalties if elected again. Meanwhile, the U.S. has announced new 25% tariffs on select Indian exports, citing trade imbalances and India’s strategic ties with Russia.
These developments mark a worrying shift—from trade disagreements to geopolitical conditionalities—in India-U.S. relations.
Background: India–U.S. Trade Relations
Strong Bilateral Trade
- India and the U.S. have long maintained a strong economic partnership.
- In FY 2023, bilateral goods trade touched $118.28 billion, reflecting the depth of this relationship.
Ongoing Trade Frictions
Despite strong trade volumes, several policy-level tensions have strained ties:
- Tariffs and Market Access
○ In 2019, the U.S. withdrew India’s GSP (Generalized System of Preferences) benefits.
○ This move was linked to concerns over high tariffs and limited U.S. access to Indian markets. - Digital Trade Disputes
○ Contentious issues include:
■ Data localisation rules
■ E-commerce regulations
■ India’s digital services tax, viewed as discriminatory by U.S. firms - Geopolitical Misalignment
○ India’s defence and energy partnerships with Russia have come under U.S. scrutiny.
○ This has raised concerns in Washington about India’s strategic alignment, especially during the Ukraine conflict.
Major Challenges in India–U.S. Trade Relations
1.Tariff and Non-Tariff Barriers
India’s protective tariffs clash with U.S. demands for fair access.
- India imposes high tariffs on products like dairy, medical devices, and auto parts.
- The U.S. calls for lower duties and fewer non-tariff restrictions, labeling India’s trade stance as protectionist.
2.Geopolitical Tensions Affecting Trade
Strategic differences are spilling over into trade policy.
- India’s ties with Russia in defence and energy are being viewed unfavourably by the U.S.
- Trade benefits are now being linked to India’s foreign policy choices, especially amid global conflicts.
3.Clash Over Technology and Data Rules
Disagreement over control of data and digital infrastructure.
- India’s data localisation laws face pushback from U.S. tech giants.
- While India argues for digital sovereignty and national security, the U.S. supports free data flow across borders.
4.Volatile Political Messaging
Trade decisions become part of U.S. domestic political campaigns.
- India’s trade policies are often portrayed as unfair during U.S. election cycles.
- This politicisation weakens trust and derails steady negotiations.
5.Limited Progress on Trade Agreements
No comprehensive trade pact has been signed despite repeated talks.
- Both countries have avoided signing a Free Trade Agreement (FTA) due to unresolved issues.
- Negotiations often stall over regulatory differences and domestic pressures on both sides.
Implications for India
1. Pressure on Export Sectors
New U.S. tariffs may hurt key Indian industries.
- Sectors like textiles, gems & jewellery, engineering goods, and auto components risk losing competitiveness.
- This can lead to reduced market share and job losses in export-driven industries.
2. Strategic Autonomy May Be Undermined
Trade benefits tied to foreign policy choices threaten India’s independence.
- U.S. linking trade preferences to India’s Russia ties creates diplomatic pressure.
- This could erode India’s ability to follow an independent foreign policy.
3. Constraints on Domestic Policy Space
U.S. objections may limit India’s digital policy freedom.
- U.S. pushback could affect India’s ability to enforce data localisation, privacy rules, and digital taxation.
- India may face a trade-off between sovereignty and market access.
4. Impact on Global Image
Trade instability may hurt India’s image as a reliable supply chain hub.
- Global investors and partners may see India as less predictable, especially compared to other Asian economies.
- This could slow efforts to position India as an alternative to China in global manufacturing.
India’s Policy Response
1. Export Market Diversification
- Increasing trade with ASEAN, EU, Africa, and the Middle East to reduce overdependence on the U.S.
2. Advancing FTAs with Other Economies
- Ongoing Free Trade Agreement negotiations with the EU, UK, Australia, and UAE to open new trade opportunities.
3. Defensive but Firm Diplomacy
- India has clearly stated its right to make sovereign foreign policy decisions, especially regarding Russia.
4. Push for Atmanirbhar Bharat
- Strengthening domestic industries and MSMEs to reduce external vulnerabilities.
- Building resilient supply chains and promoting self-reliance in key sectors.
Way Forward: Strengthening India–U.S. Trade Relations
1. Decouple Geopolitics from Trade
Keep strategic issues separate from economic negotiations.
- India must use diplomatic channels to explain its policy of strategic neutrality, especially regarding Russia.
- This can prevent foreign policy differences from affecting trade decisions.
2. Safeguard High-Employment Sectors
Secure trade concessions for labour-intensive industries.
- India should negotiate tariff waivers or special trade terms for sectors like:
- Textiles
- Gems and jewellery
- Pharmaceuticals
- Electronics
- These industries are vital for jobs and exports.
3. Boost Domestic Competitiveness
Make Indian exports globally competitive through internal reforms.
- Improve trade infrastructure (ports, roads, customs).
- Invest in technology, skill development, and manufacturing upgrades to reduce export costs.
4. Leverage WTO Dispute Mechanism
Defend trade interests through multilateral rules.
- Use the World Trade Organization (WTO) to challenge unjust U.S. tariffs.
- Uphold rule-based trade practices and assert India’s rights as a developing economy.
5. Strengthen Public Diplomacy
Clear and proactive communication can reshape perceptions.
- India should clearly explain its trade policies to U.S. policymakers, media, and businesses.
- This helps counter misleading narratives and builds trust in India’s economic intent.
Conclusion
India’s trade relationship with the U.S. is at a critical juncture. While economic interdependence continues, the increasing politicisation of trade ties poses challenges to India’s strategic autonomy and export competitiveness. A balanced strategy—rooted in diplomacy, diversification, and domestic capacity building—is essential to navigate this complex landscape.
UPSC Prelims Practice Questions
Q1. With reference to India’s trade policy, consider the following statements:
- India is the largest trading partner of the U.S. in South Asia.
- India has signed a Free Trade Agreement with the United States.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer: A
Mains Practice Question
Q. “The rising linkage of strategic choices with trade preferences reflects a new form of economic coercion.” Discuss in the context of recent India-U.S. trade developments. (250 words)
SOURCE- THE HINDU
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