SHANKARAN NAMBIARTrump abhors a trade deficit. While nowhere in the league of that with China, the United States has a significant deficit with India (US$46 billion), making Delhi ready to receive the president’s ire.
Trump was generous in his praise of Modi’s negotiation skills, declaring that “he (Modi) is a much tougher negotiator than me, and he is a much better negotiator than me. There is not even a contest.”
The compliments were patently empty.
The view that Modi is “king of tariffs” is one that Trump holds more firmly. Trump has reiterated the point, arguing, “Modi recently announced the reductions to India’s unfair, very strong tariffs, that limit US access into the Indian market very strongly. And really it’s a big problem, I must say.”
The solution to this problem is to flay India with stiff US tariffs. Trump has announced that reciprocal tariffs will kick in on 2 April.
Modi’s attempt to appease Trump during their meeting appears to have failed to work in Modi’s favour. India’s potential acquisition of F-35s was not enough to tilt the trade balance, or convince Trump that India was inching closer to the American side, given India hasn’t been entirely satisfied with the quality of defence equipment it was getting from Russia, while Moscow’s pre-occupation with Ukraine has made it difficult for it to keep up with delivery timelines.
What is surprising is the haste with which the Trump administration has made the tariff announcements.
Another pre-emptive move to win US approval was the decision to administratively allocate spectrum for satellite services, something that was previously done through auctions. Administrative allocation would give Elon Musk’s Starlink a foothold in India, edging competing Mukesh Ambani’s Reliance Jio out. Musk has expressed delight at the potential access to India’s market. This extended to the introduction of the “Scheme to Promote Manufacturing of Electric Cars”(SMEC) , aimed at attracting Tesla to invest in India, by allowing companies to test the market before investing in manufacturing facilities, and offering reduced import duties for companies that invest US$500 million.
Tesla has selected space for showrooms in Delhi and Mumbai to sell its EVs.
If Trump chooses to launch a diatribe against India’s tariffs on automobiles, there is good reason to do so since Musk is waiting in the wings to sell his cars in India.
Trump has also declared that he would like the United States to be India’s number one supplier of oil and gas. India has taken advantage of Western sanctions on Russian oil to buy crude at lower prices, which ties back to India’s longstanding ties with Russia. But to keep the United States as India’s number one export destination, particularly for India’s exports of electrical, engineering and pharmaceutical products, some accommodation may be required.
What is surprising is the haste with which the Trump administration has made the tariff announcements. Delhi and Washington are in talks on a bilateral trade agreement that is expected to increase trade between the two countries to US$500 billion. But Trump’s efforts to pry open India’s markets will make for difficulties with India’s domestic business interests.
Modi may yield, but how many steps backwards he takes will also depend on his judgement of domestic backlash.
The article appeared in the lowyinstitute