US Secretary of State Mike Pompeo’s visit to India comes at a time when there is growing tension in trade relations between the two countries. The Trump administration’s inconsistent and often unorthodox foreign policies, bordering on protectionism, have been sending confusing signals to friends and foes alike. On one hand, it acknowledges India as its natural ally and a strategic partner while on the other, it has been imposing one restriction after the other, be it on trade, oil or defence procurements. However, the Indo-US bond is too deep and wide-ranging to be distracted by the irritants on the trade front. While Pompeo’s talks in New Delhi are basically aimed at laying the ground for a meeting between President Donald Trump and Prime Minister Narendra Modi later in the week at the G20 meeting in Japan, the occasion would provide an opportunity for both sides to iron out the differences that have cropped up over myriad issues in recent times. By ending the special trade status to India under the Generalised System of Preference (GSP), the Trump administration delivered a blow to the bilateral trade. Though the GSP exports account for just 12% of India’s total exports to the US and the tariff benefit is a mere $260 million, the impact of the termination will be felt in some of the key sectors. The previously protected Indian merchandise will now come into direct competition with China and dampen prospects for India’s exports to the US.
India’s export of steel and aluminium is subject to increased import duties while other major exports such as clothing and leather goods are already struggling against merchandise from countries such as Bangladesh. The software services exports, now stagnant at $150 billion, will face headwinds due to technological disruption and tightening of US immigration rules. Abolishing of sanction waivers for oil purchases from Iran has also made India uncomfortable. There is also pressure on India to scrap its purchase of the S-400 missile defence system from Russia. The threat of US restrictions on H1-B visas for Indian professionals in retaliation for India’s insistence on local data storage by big foreign firms could have far-reaching implications. If the US wants to leverage its strategic partnership with India to serve as a counterweight to China, then it must adopt a flexible approach towards trade disputes. On its part, New Delhi also needs to address the concerns of the US on issues like data localisation, tariffs, price caps on imported medical devices and e-commerce rules. The Modi government’s emphasis on local sourcing norm for industries such as electronics, retail and solar continues to be a source of irritant for American companies. Pragmatic and mutually accommodative approach is the way forward.