The US and India announced many new initiatives during Prime Minister Narendra Modi’s Washington visit during June 21-13. Both countries have deep people and trade connections, thanks to a four million-strong Indian diaspora, two lakh Indian students in the US and over $300 billion worth of bilateral trade in goods, services and software.

What effect will the new equations/announcements during the PM’s visit have on ‘Make in India’ and bilateral trade?

The US strategy for India rests on two critical factors: the US desire to contain China at trade, technology and military levels, and replace Russia as India’s most prominent defence supplier. During 1990-2010, the US actively supported China’s rise.

Apple engineers worked for years with several Chinese firms to develop them into global quality component suppliers. China’s near monopoly of the world’s electronics design and manufacturing ecosystem can be attributed to this factor. Similar examples abound in most hi-tech areas, where Western firms supported China’s rise.

But now, the US is working to find an alternative to China. In October 2022, the US export control rules restricted the country and its allies from assisting the Chinese production of 16 nanometres or smaller chips. The result: As Apple iPhone 15 Pro Max uses 3-nanometre chips, such phones could not be produced in China any more. This may be the part reason for Apple shifting part production to India. India’s smartphone exports exceeding $12 billion in FY23 underline the high potential of the partnership.

Make in India

Modi’s visit resulted in the closing many deals to further manufacturing. These include the GE-HAL deal, which may allow India to co-produce jet engines for use in Tejas Light Combat Aircraft and Generation 5 fighter jets.

The aircraft servicing industry got a boost with Boeing setting up logistics support in India. Indian ship servicing industry may get a boost with the US Navy finalising agreements with Larsen and Toubro and Mazagon Dock Ltd for shiprepair facilities in Chennai, Mumbai, and Goa.

As India buys 16 drones worth $3 billion, it should insist on some level of technology transfer to augment its expertise. The semiconductor supply chain gets a boost with a new $2.75 billion semiconductor assembly, testing, marking, and packaging (ATMP) unit in Gujarat. Micron Technology will invest $800 million, while Indian Semiconductor Mission will foot the remaining bill. This is not about setting the Fab. The Critical and Emerging Technology (CET) initiative has been announced. It will promote joint research in quantum, advanced computing and artificial intelligence. Most initiatives are announcements or MOUs, but they signal a positive way to strengthen the ties.

Bilateral trade

The US is a significant destination for India’s software exports and a top buyer of Indian goods. About 60 per cent or an estimated $100 billion revenue of Indian IT and ITeS firms comes from the US.

The US bought Indian goods worth $80.1 billion in 2022. India’s key exports to the US are textiles and apparel ($11 billion), cut and polished diamonds ($8.9 billion), pharmaceuticals ($6.7 billion), petroleum products ($6.3 billion), machinery ($6.3 billion), electronics ($5.3 billion), steel ($3.2 billion), automobiles ($3 billion), gold jewellery ($2.4 billion), shrimp ($1 billion), smartphones ($909 million).

The US has withdrawn the GSP benefits from India, making Indian firms pay full tariffs. India has taken up the issue with the US.

On the import side, the US is India’s third largest partner, exporting goods of value $51.3 billion to India in 2022. India’s essential imports from the US are petroleum crude ($11.5 billion), petroleum products ($4 billion), LNG ($1.7 billion), rough diamonds ($8 billion), coking coal, etc. ($3.9 billion), machinery($3.1 bilion), electronics ($2.2 billion), medical equipment, etc. ($2.7 billion), airplanes ($1.5 billion), and gold ($1.7 billion).

Almost 40 per cent of imports are petroleum and coal. The former president Donald Trump called India the tariff king on account of high MFN duties. The estimated bilateral services trade outside of IT and IT services trade is $60 billion.

The IPEF

India, the US and 12 other countries are negotiating the Indo-Pacific Economic Framework for Prosperity (IPEF). The negotiations centre around four subjects called pillars. These are trade, supply chain, clean economy and fair economy. Negotiations on the supply chain pillar were largely concluded in May.

India has not joined the trade pillar but agreed to be an observer. This means India is not in the negotiating room but may join later. The fallout of this could be India having to accept whatever has been agreed upon among the members.

Joining the trade pillar is not in India’s interest as the focus is on agreeing to WTO Plus standards and practices the US follows in digital trade, labour, environment, agriculture, etc. India may have to agree to free cross-border data flows, not charge tax on services offered online in future, reiterate the ILO convention or COP 26 commitments, allow the import of GM seeds and foods, and mandatory seeking of public inputs before increasing tariffs or imposing trade restrictions. India must set its domestic laws on these issues before taking international commitments.

India and the US have agreed to terminate six outstanding disputes at the WTO. India has also agreed to remove retaliatory tariffs on chickpeas, lentils, almonds, walnuts, apples, boric acid, and diagnostic reagents imported from the US.

Since India had imposed retaliatory tariffs in response to the US imposing additional tariffs on steel and aluminium imports, it is expected that the US will eliminate these tariffs.

India-US partnership has been one of equals both at the people and trade levels. Both should maximise the opportunity without sacrificing strategic autonomy. Be it geopolitics or trade relations.

The writer is founder, Global Trade Research Initiative