Hours after he took over as the external affairs minister in the new Narendra Modi government, former diplomat S. Jaishankar had a situation on hand. US President Donald Trump formally rescinded India’s designation as a beneficiary developing country under the Generalized System of Preferences (GSP).
This designation, accorded to India in November 1975, provided preferential duty-free access to the US markets for an array of goods. It is the clearest expression yet of Trump’s intention to confront economic differences, especially bilateral trade deficit, with India head on — irrespective of its implications for the wider US-India relationship. While Jaishankar is no stranger to these issues, the context in which he will have to deal with them is more challenging than ever.
The former foreign secretary’s appointment to a top cabinet post signals Prime Minister Narendra Modi’s desire to accord high priority to external engagements in his second term. In particular, Jaishankar brings to the table deep experience on big-picture geopolitical issues. Speaking at a public event a few weeks before he returned to government, Jaishankar noted that Indian foreign policy now aimed at a “positioning that will arise from optimising ties with all major players”. First in the order of priority was “cultivating America”.
This has arguably been the priority of successive Indian governments over the past two decades. Yet, the pursuit of this objective has been rather more difficult during Trump’s tenure. Trump has pursued two separate tracks in dealing with India. In the first, his administration has identified India as a significant partner in the Indo-Pacific and Afghanistan (although the latter may now be moot). The Pentagon’s “Indo-Pacific Strategy Report”, released almost the same time as the revocation of the GSP status, underscores the importance and potential of India as a security partner in this region.
Strategic convergence, however, has not prevented Trump from training his sights on trade with India. The Trump administration has identified India as one of the key countries with which bilateral trade deficits have to be reduced. It has slapped additional tariffs on steel and aluminum imports from India, and pushed hard in bilateral negotiations for market access as well a range of specific issues, such as price caps in India for medical stents and requirements for dairy imports into India.
While the bilateral trade deficit with India (around $22 billion in 2018) pales in comparison to countries like China, Trump has called out India as a “tariff king” and dismissed the Modi government’s moves to address these as insufficient. In his order revoking the GSP status for India, which will affect Indian exports to the tune of $5.6 billion, Trump stated that “India has not assured the United States that India will provide equitable and reasonable access to its markets.”
In its response, the Indian government has said that in bilateral trade discussions it had “offered resolution on significant US requests” and it was “unfortunate” that the US did not accept these. Indian officials have also expressed hope that the discussions can continue, leading eventually to a restoration of benefits to India under the GSP programme. This is entirely in keeping with India’s approach to dealing with the Trump administration on thorny economic issues: New Delhi has even refrained so far from retaliating to the tariffs imposed on its steel and aluminum exports.
New Delhi and Washington have for decades disagreed on a host of economic issues, especially owing to India’s reluctance to open itself to American trade and investment. Against this historical experience, India understandably feels that these differences need not impede the pursuit of broader strategic cooperation. But this approach risks under-estimating the “America First” impetus of Trump’s foreign policy. As the Chinese have been made to rudely realise in the past weeks, Trump’s focus on bilateral trade deficits remains relentless and he is willing to impose and absorb significant costs in pursuit of these objectives. Trump’s move on the GSP status for India should, therefore, be read as a shot across the bow.
Any lingering expectations of bilateral benevolence were given a further reality check last week. American officials have said on background that if India went ahead with the purchase of S-400 missile defence system from Russia, then it would attract US sanctions. New Delhi had hoped that this issue had been finessed, but apparently not. The Trump administration’s stance underlines the dangers of sharp differences in the economic domain spilling over to other areas. In particular, any move by the US to impede India’s pursuit of strategic capabilities is bound to evoke a sharper response from New Delhi, which in turn would impinge upon the broader partnership.
Arresting a slide in bilateral relations is essential for another, more pressing reason. The first priority for Indian foreign policy today is the same as the first priority for Indian domestic policy – economic renewal of India. The need for a renewal is evident in the undeniable and dismal facts of our economic situation. Such a renewal needs to go beyond short-run efforts to resuscitate growth and focus on fundamental issues that now threaten to block our transition to a middle-income country. The need for a stable and enabling external environment has seldom been more urgent. But in a time of geopolitical and economic flux, this is going to be a difficult objective to pursue.
India’s relationship with the United States needs to be set against this tough domestic and international context. The new external affairs minister has to hit the ground running.
The author is Professor of International Relations and History at Ashoka University and a Senior Fellow at Carnegie India. Views are personal.