India-US relations survived World War & Cold War. They may not survive Trump

US President Donald Trump and Prime Minister Narendra Modi embrace in Washington, DC | Photo: Mark Wilson | Getty Images

Trump’s policies underscore discontent with globalism of past decades and a turn towards emphasising US’s narrower national interests.

The mounting tensions over trade and tariffs between the United States and China have roiled Asian financial markets. Even as the BSE Sensex plunged deep last week, the Indian government chose to desist from escalating its own trade skirmish with the United States.

In response to the American imposition of an additional tariff of 25 per cent on steel and 10 per cent on aluminium imports from India, New Delhi was poised to slap tariffs on American imports to India, ranging from apples to steel products. These tit-for-tat tariffs were meant to take effect from 4 August, but the government decided on a moratorium of 45 days.

Never mind that the attempts over the past couple of months to conjure a “trade package” – one that would reconcile each country’s desire to access specific segments of the other’s markets – have yielded little so far. The government’s decision to buy some more time is understandable: difficulties with the United States over trade have seldom eclipsed the bilateral relationship. Yet, in a longer historical perspective, this time does seem different.

The first US merchant ship, the United States, touched the shores of India in December 1784. The subsequent story of US-India interactions could well be told as a tale of commercial ambitions continually thwarted — initially by the East India Company’s monopoly and later by British India’s trade policies. The First World War led to a reorientation of India’s external trade away from the British empire: Japan and the United States emerged as significant trading partners.

With onset of the Great Depression, however, Britain pulled India into an imperial trading bloc ringed by high tariff walls against countries outside the British Commonwealth. The Americans regarded the fracturing of the global economy into autarkic zones, led by Germany, Japan and Britain, as the one of the main drivers of the Second World War.

Even before the United States formally entered the war, the Roosevelt administration was determined to ensure the restoration of a global economy in its aftermath. A key American objective during these years was to prise open Britain’s imperial trading bloc of which India was so central a part.

So, as Washington extended lend-lease supplies to India, it sought to negotiate a treaty of commerce and navigation with India that would accord “most favoured nation” status to the United States. In other words, India would treat America as a trading partner on a par with Britain and other countries of the Commonwealth.

Interestingly, the American demand was resisted not only by the Raj but also by Indian capitalists in the Federation of Indian Chambers of Commerce and Industry (FICCI). As India’s freedom seemed within its grasp, leading Indian businessmen were keen to ensure that the waning of Britain’s commercial preponderance in India did not coincide with the start of a new American dominance.

In early 1943, the FICCI adopted a resolution urging the Government of India to stand firm on the issue of tariffs to ensure India’s future industrial development and fiscal independence. Although the Roosevelt administration was loath to drop its demands, it forbore from pressing them, owing to the larger strategic imperatives of the war against Japan in which India played an important part.

After India’s independence, successive American administrations attempted to negotiate trade and investment agreements – but were rebuffed by an India committed to building an autarkic industrial economy. Jawaharlal Nehru tends to take the rap for these policies, but it is worth recalling that there was a wide consensus on them. In fact, when the Nehru government sought to dilute its policies with a view to encourage the inflow of scarce American dollars, the FICCI held the government’s feet to the fire by insisting on a strict adherence to the industrial policy resolutions previously adopted.

Although New Delhi’s policies irked the Americans, they channelled extraordinary amounts of economic aid to India until the early 1970s. Even the Eisenhower administration, which took a dim view of India’s non-aligned stance in the Cold War and roped Pakistan into alliances, came round to propping up India’s five-year plans. As President Eisenhower put it, if they didn’t provide such aid, “we could be sure that Soviet Russia would do so”.

The end of the Cold War coincided with India’s embrace of reforms, yet economic relations with the United States retained an edge. India’s restrictions on foreign equity investments and its policy on intellectual property rights led the George H.W. Bush administration to place it on the “Super 301” watch-list. These issues, as well as others such as India’s stance at the WTO, remained areas of serious disagreement down to the Obama administration.

And yet, it would be incorrect to regard recent developments as merely continuous with older problems. Since the early 1940s, economic friction between the two countries has been smoothened by the larger strategic objectives that the United States sought to pursue: the war against Japan and Germany; the Cold War against the Soviet Union; the expansion of globalisation thereafter; and, most recently, preserving American hegemony in Asia against potential challenges from a rising China.

Trump’s policies underscore the discontent with the globalism of previous decades and a turn towards emphasising America’s narrower national interests rather than its hegemonic role with all the attendant costs. The problem for India lies in the fact that the Trump administration has no wider strategic horizons that could subsume differences over bilateral trade. While New Delhi may have put off a difficult decision, there is no denying that we are now in uncharted waters.

Srinath Raghavan is a Senior Fellow at Centre for Policy Research.