U.S. and India Seek to Strengthen Economic Ties During Modi’s State Visit to Washington

The Biden Administration is ramping up its efforts to woo India as a reliable strategic partner in advance of Indian Prime Minister Narendra Modi’s state visit to Washington this week. While security issues will feature prominently, trade will also be high on the agenda as the United States seeks to strengthen economic ties with the world’s most populous country.

The United States is India’s largest trading partner, with bilateral trade surpassing $190 billion last year. However, significant barriers to trade remain, and both countries should use Modi’s state visit as an opportunity to tackle major trade irritants and pave the way for a more comprehensive trade dialogue in the near future.

Historically, the two countries have not seen eye to eye on international economic affairs, and trade links between them have suffered as a result. Recently, Raj Kumar Singh, India’s minister for power and renewable energy, criticized the Biden administration’s signature climate initiative, the Inflation Reduction Act, as pure protectionism that disadvantages developing countries unable to subsidize their own transition to green energy. But India is no stranger to protectionism. Last year, India applied a 40 percent tariff on solar panel imports, which it is considering slashing in half after a shortfall in domestic capacity. On trade, India consistently acts against its own interests, fiercely opposing plurilateral negotiations at the World Trade Organization on digital trade and investment facilitation. India has also opted out of the Indo-Pacific Economic Framework’s trade pillar, the Biden administration’s signature trade initiative. The United States should push India to participate in these talks, but also indicate that a bilateral trade agreement is not only possible, but desired.

Despite this, there is still ample opportunity to improve U.S.-India trade relations. Treasury Secretary Janet Yellen has identified India as a trusted trading partner, and the Biden administration should lift Donald Trump–era tariffs on steel and aluminum that were imposed in the name of national security. If India is a friend trusted with critical supply chains, then importing steel and aluminum from India should not be viewed as a security threat. While India’s steel sector is very carbon-intensive and will require both domestic and international coordination to reach its decarbonization goals, the United States could help those efforts through technical assistance and by inviting India into the green steel club it is developing with the European Union.

Another way that the United States could advance economic ties with India would be to renew the Generalized System of Preferences (GSP) program, which provided duty-free access to a range of imports from developing countries. The Trump administration removed India from the program in 2019 for failing to provide market access, just a year before the program itself expired. India had been the largest beneficiary of GSP until its removal, and 12 percent of its exports to the United States in 2018 were done under its auspices.

While the GSP program did not make up a significant amount of U.S. imports (just 0.8 percent in 2020), for many developing countries, it provided critical access to the U.S. market and helped contribute to global poverty reduction. President Biden should assure India that its GSP status will be reinstated after Congress has renewed the program, and Congress should act swiftly to pass a GSP bill that avoids stringent new conditions.

At the same time, the U.S.-India relationship needs to remain reciprocal, and the United States should demand more from India as it seeks to turn the page and deepen economic ties. During a meeting in September 2021, Modi declared that the importance of “democratic values, traditions to which both countries are committed … will only increase further.” Biden echoed this sentiment, but emphasized that both countries have “a shared responsibility to uphold democratic values.”

However, aside from these platitudes, U.S. officials have been mum on India’s democratic backsliding. Some experts suggest that the United States should be honest about its alliance of convenience with India, which they argue is about countering China instead of “seeking an imaginary relationship based on values.” Others have pointed out that the democratic values that underpin the U.S.-India relationship are important for stable economic relations and help U.S. businesses seeking to invest there.

The bigger question is what kind of geoeconomic order the United States wants to encourage. If Jake Sullivan’s speech at the Brookings Institution is taken at face value, one would assume that “repairing faith in democracy” is at the heart of economic renewal and opportunity. But the United States should not only do the hard work of renewing faith in democracy at home—it should also expect its allies to be equally committed. Absent this, any efforts at values-based economic deepening or friendshoring will be perceived as mere window dressing to our allies, and as evidence to China that U.S. concerns about its rise have less to do with authoritarianism than with economic competition.

Source: https://www.cfr.org/blog/modis-state-visit-us-litmus-test-values-based-us-trade-policy