Explainer: All about Indo-US trade relationship

The US was India’s largest export destination and the second largest trading partner in 2020-21. While US exports to India were slightly lower than what it imported from the country, India still was among the US’s top 15 export markets last year. US Trade Representative Katherine Tai, who is in India on her first official visit, stated that trade relationship between the two countries was a top priority for US President Joe Biden and for her.

There are, of course, frictions, too, due to conflicting interests and expectations. These arise from the fact that the two are at different levels of development and have differing priorities. But the common interests almost always outweigh the wrinkles.

India’s exports to the US in 2020-21 were valued at $51.62 billion and imports at $28.88 billion, resulting in a trade deficit of about $23 billion for the US. The top traded goods include pearls and precious stones, pharmaceuticals, machinery, electronics, clothing, vehicles, chemicals and fish products, optical, photo, medical apparatus and aluminium.

Donald Trump and Prime Minister Narendra Modi seemed to hit it off famously well whenever they met, but it actually did not translate into any major gains for India. On the contrary, the Trump regime put in place many trade restrictive measures. It unilaterally imposed penal import duties on steel and aluminium from India and some other nations under the garb of protecting national security interests.

Trump also withdrew GSP benefits (exports at zero duties) from Indian exporters, of certain items, and kept putting pressure on the country to import more from the US to bridge the trade deficit. The former US President also tried to get into a Free Trade Agreement with India, but was inflexible on his key demands in areas such as market access for medical equipment and dairy and farm products.

On the face of it, the Biden government seems to be more tolerant than the previous regime towards the trade surplus that India has with the US. However, it has not yet taken any step to undo the harsh measures implemented by Trump, be it the imposition of import duties on steel or withdrawal of GSP benefits. On the positive side, Biden is lowering some of the work visa restrictions imposed by Trump, which will definitely benefit Indians. And the possibility of the USTR engaging with India on revoking steel duties, as it did for the EU recently, cannot be ruled out. The focus on pushing the interest of digital industry (taking a stand against data localisation), e-commerce players, pharmaceutical majors and the agriculture and dairy sector is common to both governments.

There exists a considerable potential for growth in trade and investment ties, especially following the trade war between China and the US that began during Trump’s tenure. The Covid pandemic has also driven home the importance of diversifying supply chains (beyond China).

While the USTR identified digital economy, services, health-related trade and agriculture as potential growth areas, there is also scope for growth in traditional areas of exports such as garments, gems and jewellery, chemicals, electronics and machinery. In the area of investments, India has lowered FDI barriers in almost all sectors, most recently in defence, and there is scope for collaboration.

India and the US should focus on lowering of non-tariff barriers (NTBs) that businesses in both countries face. The two sides should list out the various NTBs, in the form of sanitary and phytosanitary standards, technical barriers, economic needs test and complex registration requirements that businesses may face and lower them.

The US government could consider re-instating GSP benefits for Indian exporters as the withdrawal has only helped other GSP beneficiaries and a restoration could actually benefit the American industry using the items as cheap inputs. For increasing flow of investments and collaborations, the two sides could try to understand, through discussions at the Trade Policy Forum, how investment rules could be made more attractive.

The Biden government realised that India is not in a position to give major market access in areas such as agriculture and dairy. Nor can it easily commit to TRIPS plus provisions, open up data transfer or liberalise e-commerce rules further. So, at least for the time being, the US is not showing much inclination for an FTA with India.

COMMENT NOW