External Affairs

Trump’s Foreign Economic Agenda May Have Pitfalls for India

While the demise of the TPP may not be bad for India, the country’s investments in Iran could be in trouble if Donald Trump decides to upend the Iran nuclear agreement.

File photo of US President-elect Donald Trump hugging an American flag as he takes the stage for a campaign town hall meeting in Derry, New Hampshire August 19, 2015. Credit: Reuters/Brian Snyder

File photo of US President-elect Donald Trump hugging an American flag as he takes the stage for a campaign town hall meeting in Derry, New Hampshire August 19, 2015. Credit: Reuters/Brian Snyder

Washington: US president-elect Donald Trump has got down to the business of selecting his new team, interviewing a slew of individuals from former Republican candidate Mitt Romney to the only “Hindu” Congresswoman, Tulsi Gabbard of Hawaii. He has, of course, announced four major appointments, that of Lieutenant General Mike Flynn as the national security advisor, Jeff Sessions as the attorney general, Stephen Bannon as the chief strategist, Donald McGhan as the White House counsel and Nikki Haley as the UN ambassador.

These seem to suggest that he was determined  to play by the script he was elected to. However, in his YouTube message to the public last Monday and in his daily tweets, he has displayed a more nuanced approach. For one, he has revealed his preference for the kind of one-way communication that has been popularised by leaders like Prime Minister Narendra Modi. For another, through this well-scripted short video, he revealed a little more, and a little less, of his positions on a range of issues. He said little or nothing about his plan to build a wall or deport illegal immigrants, he did not refer to ending programmes set up by current US President Barack Obama, such as affordable healthcare. He did not talk tough on terrorism or getting allies to pay more for defence. Instead, he spoke of the need to study the US’s vulnerability to cyber and other attacks, and to plan to defeat them.

Two issues dominated the Trump campaign and they are likely to remain the main drivers of his administration – trade and immigration. While the latter is largely domestic in its scope, the former will have ramifications around the world, depending on the intensity with which Trump presses the issue. Even so, as president-elect, Trump has dialed back on the rhetoric on immigration that brought him to power.

Changing global trade dynamics

Yet, the issue of the structural shift in the US economy that led to large-scale manufacturing jobs shifting to China, will not go away easily. A recent paper by Justin Pierce and Peter Schott showed that the loss of jobs to China may have resulted in a rise of suicides among the workers who lost their jobs and were not able to adjust to the change. The paper’s findings are more complex, suggesting on the other hand the gain of those who were able to sell their products and services to China, which included farmers, car and aircraft manufacturers and consultants and researchers.

As president, Trump will have the authority to withdraw from the Trans Pacific Partnership (TPP), but whether he can redraw trade deals to bring jobs back to the US is another matter.

According to the Peterson Institute for International Economics, a full-blown trade war with China and Mexico could push up US unemployment to 9% in 2020 from the 4.9% today.

China could be the loser in any short-term trade war with the US, but in the long term it would come out a winner. Beijing could well inadvertently become the leader of world globalisation, dictating its direction and course. With Trump announcing the demise of the TPP, the Chinese-led Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia Pacific would hold sway. Trump is pursuing a chimera in trying to get back American manufacturing jobs. It simply does not make sense for American companies to bring them back home. Faced with trade barriers, American companies would simply go to some third country.

There are, of course, limits as to what China can do at present, when its share of world trade is 15%. The US and EU account for 31% of the world’s imports, while China’s share was 12% in 2015-2016. The bulk of world demand still comes from the advanced western economies. Consumption still forms just about 25% of Chinese GDP. In other words, China alone cannot maintain the health of the global trading system if the US is determined to disrupt it.

Many people expect that Trump will not like to give China the advantage in the trade sphere. So he will renegotiate another version of the TPP and the NAFTA, and make a deal with China after extracting concessions all around.

India is not a major player in world trade. The TPP would have found it on the wrong side of the divide. However, New Delhi is seeking membership in the RCEP and has signaled that it is willing to negotiate its three-tiered tariff schedule, even while it is seeking liberalisation of the trade in services.

What happens to Iran?

But the Trump administration could pose a dilemma for India on another front: Iran. After a great deal of dithering, New Delhi has committed itself to the Chabahar project, along with the associated rail line to Zahedan and the special economic zone. The project offers India connectivity to Afghanistan, Central Asia and on a larger canvas, to Europe via the Iranian railways system. India and Iran signed an agreement in 2002 with Russia to develop the International North South Transportation Corridor. With minimum investment to build portions of the rail lines in Iran and the Caucasus, India can be the terminus of a transportation network rivalling China’s One Belt One Road.

The Trump approach to upend the Iran nuclear agreement would pose a major challenge for India. First, it would risk seeing its investments stuck in a fresh round of sanctions. India could opt to challenge the US move, as China, Russia and some European countries most certainly will. But in that case, there would be a fallout on Indo-US relations, especially in the Asia-Pacific region. A slowdown of Indian plans in Chahbahar would benefit China and Pakistan, considering that Tehran has expressed its desire to participate in the China-Pakistan Economic Corridor.

Manoj Joshi is a distinguished fellow at the Observer Foundation.