Economy

Donald Trump Administration’s Focus on Trade Deficit With India Is for Real

The trade deficit and market access question could potentially become a problem between the two countries and start seeping into other better-managed bilateral issues.

President Donald Trump holds a joint news conference with Indian Prime Minister Narendra Modi in the Rose Garden of the White House in Washington. Credit: Reuters/Carlos Barria

President Donald Trump holds a joint news conference with Indian Prime Minister Narendra Modi in the Rose Garden of the White House in Washington. Credit: Reuters/Carlos Barria

Washington: India and the US have continued to build their relationship under US President Donald Trump without the anticipated hiccoughs in the upward trajectory except for one sore point – the trade deficit.

Even though India is tenth down the list of countries Trump plans to target for the US trade deficit, he seems to berate all in equal measure. Just for comparison – US trade deficit with China is over $309 billion and with India only $27 billion.

Trump, his cabinet members and lately American diplomats who have begun to read the White House better with time, haven’t missed an opportunity to remind India that the trade decifit must be corrected. Even if the script doesn’t call for it, Trump improvises and mentions it anyway, riffing about how India is making “billions and billions” of dollars.

White House officials say he finds a way to weave in the deficit no matter what the topic. In early June, while pulling out of the Paris climate change agreement, the US president wrongly accused India of making “its participation contingent on receiving billions and billions and billions of dollars in foreign aid from developed countries.”

Then last month, when Tump finally gave an outline of his new South Asia policy, he again found a way to take a swipe at India, saying New Delhi needed to do more to “help us in Afghanistan, especially in the area of economic assistance” because it had a trade surplus with the US. The linkage was awkward and even gratuitous, because India has committed $3 billion in development projects to Afghanistan.

To be sure, the mention of the trade deficit is generally preceded by positive references and a mention of India’s centrality in Trump’s vision for South Asia. “We appreciate India’s important contributions to stability in Afghanistan,” he said before talking about how “India makes billions of dollars in trade from the United States.”

The government of India has adjusted to the rhetoric over time and doesn’t allow its feathers to be ruffled any longer. But some, especially in Twitter’s foreign policy world, find Trump’s references snarky.

The latest Trump official to raise the trade deficit was commerce secretary Wilbur Ross. At a meeting of the US-India Business Council on Tuesday, he said India must open its markets, allow more American companies and reduce the trade imbalance. While he mentioned the positives – Spice Jet’s decision to buy 120 airplanes from Boeing – his focus was squarely on the deficit in line with the Trump administration’s relentless focus on the problem.

“Annual bilateral trade between the US and India has doubled over the last decade and was $114 billion in 2016. Unfortunately, over the same period, trade deficit tripled, now at $27 billion. We would naturally want to see growing and balanced trade,” Ross said. The potential for growth is immense because only 1.5% of US exports go to India and only 6.3% of Indian exports come to the US, he added.

He faulted the imbalance in investment as well, saying US investors put in $32.9 billion in India last year, Indian companies invested $12.1 billion in the US. The direct co-relation between Indian and US companies and their relative might and ability to invest abroad is odd to say the least but this is the economic calculus of the Trump administration.

India’s ambassador Navtej Sarna countered the uni-dimensional focus of Ross’s speech, gently reminding the audience that the bilateral relationship was “multi-faceted and layered” and should not be seen in the “narrow trade perspective.” The inherent logic to the relationship goes beyond what is visible in trade figures, Sarna said.

The event was organised by the USIBC to showcase the upcoming Global Entrepreneurship Summit in Hyderabad in November. The GES, which is to be headlined by Ivanka Trump, will be the first major joint event hosted by India with the Trump administration. The November 28-30 event is aimed at brining together new entrepreneurs and investors from around the world to find new projects, ideas and opportunities.

As Sarna said, Prime Minister Narendra Modi considers the US a partner for a “new India” and hopes to find synergy with Trump’s “Make America Great Again” programme. He said there was 100% FDI allowed in almost all sectors and that is why India received $62 billion in 2016-17, one of the few countries still hitting the sweet spot for FDI despite a slowdown in GDP growth.

There must be reasons why the US is co-hosting GES with India and not some other country. But it’s clear the Trump team will continue pushing hard for more market access in India, a point of considerable dispute within the BJP and associated communities. The issue could potentially become a problem between the two countries and start seeping into other better-managed bilateral issues, observers say.

Seema Sirohi is a Washington DC-based commentator.