The global trade war, exacerbated by the US President Trump after the beginning of his second tenure, has hardly surprised anyone. It had all started during his first tenure and the baton was carried by his successor Biden with the same momentum. Trump’s pre-poll promises had clear indications that, during his second tenure, the trade war would be pushed to the point of no return and this is how the scene has panned out after his return to the White House.
The war is clearly meant to restrict the growing clout of China in the global supply chain, where it has emerged as the fulcrum since the early 1990s. Its unmatched manufacturing prowess and control of raw materials across the planet has once again raised the apprehension of creating another bipolar world order, where economic dependence of many countries on China will give a decisive edge to the dragon over Uncle Sam in the not-so-distant future.
While the tussle between Washington and Beijing is unlikely to be resolved anytime soon, the high tariff imposition on other countries (Trump administration is calling it reciprocal) has more or less been a case of collateral damage. It was meant to prove a point to everyone that the US action is non-partisan. Very subtly, it has left the doors open for many countries to renegotiate (it has already started) and, in the case of some select ones like India, steps have been set afoot to put in place a new treaty (Bilateral Trade Agreement or BTA) to pave the way for a more dynamic bilateral trade regime.
The agility shown by both countries to push the treaty to its logical conclusion by the end of this year has stumped most of the observers. It was mooted during the visit of the Prime Minister Narendra Modi early this year to Washington to meet Trump after he was anointed for the second time. In terms of core objective, the proposed treaty is talking big – it is targeting the bilateral trade to multiply four times from the current level and touch $500 billion annually by 2030. And there has been a flurry of activities and action since then to create a mutually beneficial framework within the decided deadline. Officials of both countries have done preliminary meeting exercises (regular meetings will commence from the next month) and even during the recent trip to India, Vice-President Vance in his public statements has repeatedly emphasised the strategic importance of this agreement for both the countries as well as the global trade.
There are clear signals from both the sides that framing of this BTA is being undertaken with uttermost seriousness. A strong theory doing the rounds in the Indian corridor of power says that the US President is keen to have it inked before 2025 signs off. A deal of this size and scale may irk its bete noire China further. India, which shares boundaries with China, is expected to also emerge a big market for purchase of US defence equipment and provide more accessibility to its consumer firms. India is slated to gain by becoming a more prominent manufacturing destination with the US backing. The recent gains it has made in electronics assembling and manufacturing is rooted in strong support of American firms.
The intent of both countries, as underlined in the proposed BTA and the rapid follow-up initiatives they have undertaken, is indeed laudable. Nobody in his right mind would object to it. However, India needs to bring in similar seriousness to some of the other FTAs (Free Trade Agreements) it has been working on for the past several years. Some of them have been pursued for too long (more than a decade) and they are often referred to as permanent Work in Progress (WIP). The fifth largest economy (by GDP worth), which is targeting to break into the top three economies list by the end of this decade, must not miss out the opportunity to forge similar treaties with other important economic blocks or countries to justify its arrival and positioning as a big global market. The proposed FTAs with the EU or the UK have seen many rounds of interactions without any result. Both sides have been unaccommodating to each other’s demand on some critical issues and, therefore, the WIP theory has come into the play as there has been no serious attempt to find a middle ground. India, for instance, has been opposed to lowering the taxation slab on luxury automobile offerings from Europe and this has baffled many considering the presence of strong domestic players and a clutch of entities from other Asian countries. The Indian automobile market is quite formidable and it hardly needs any protection. With more pragmatic decision making, India can also make the most of other FTAs and have closer alliance with other noted pillars of the global economy.