How Trump can tap into US-India trade potential

From his first day in office, President Trump has jettisoned multilateral agreements, previously the hallmark of U.S. global economic leadership, instead favoring bilateral agreements as his modus operandi. 

One of his first actions in office was to withdraw from the Trans-Pacific Partnership (TPP), which the remaining 11 nations signed on March 8. This move by Trump certainly reduces U.S. political and trade influence in the region, creating a void that a new regional hegemon, such as China, will seek to fill. 

{mosads}Yet, the United States is not the only “loser” in this scenario. India — the world’s largest democracy — was also left out of the TPP, as it has been left out of Asia-Pacific Economic Cooperation (APEC) for more than 20 years.

Although Trump has demonstrated an interest in strengthening ties with India, efforts to do so have conveyed the administration’s narrow, military-oriented focus on the region, devoid of economic or trade underpinnings. Bilateral U.S.-India trade might fill that void. But to have a chance of success, it would need to be very focused on the fast-growing, complementary sectors of IT, e-commerce, and cybersecurity that would also appeal to the strategic objectives of both nations. For the U.S., such a bilateral agreement would meet Trump’s economic objectives while strengthening US geostrategic position in the Indo-Pacific. India would reap economic benefits that may give Modi the boost he needs to secure the 2019 election. 

This will not be easy. Timing is not particularly auspicious for India to be making trade deals. Prime Minister Modi’s Bharatiya Janata Party (BJP) is in danger of losing its dominance over India’s political landscape, creating an uncertain future for the country.

Eliminating tariffs and harmonizing regulations would bolster trade and economic welfare in both nations. The total value of U.S.-India bilateral trade increased from $37 billion in 2005 to $115 billion in 2017, and the right agreement could expand bilateral trade even further. The tech and e-commerce sectors both present especially promising opportunities for growth. The outlook for the Indian IT industry in 2017-2018 saw a 7 percent to 8 percent growth in exports, worth nearly $125 billion and yielding around $26.5 billion in revenues. Only 14.4 percent of Indian internet users currently shop online, demonstrating tremendous growth potential for U.S. e-commerce players

A bilateral trade agreement would help U.S. companies tap into such opportunities by providing greater access to Indian markets. For India, U.S. partnership would help develop the digital and physical infrastructure required to fully support the rising demand for e-commerce on. This would, in turn, improve the ease-of-doing-business for US companies in the country.

A bilateral agreement with a sectoral focus on tech and cybersecurity also has geostrategic merit. The United States and India find convergence on democracy, pluralism, and rule of law, as well as their shared interest in upholding the security of maritime commons. Moreover, India is poised to become a major regional player. Modi is expected to shift the country’s “Look East” policy towards a more dynamic “Act East” agenda.

In the wake of Trump’s TPP withdrawal, strengthening American presence in the Indo-Pacific region would help the U.S. regain its leadership role in the region vis-à-vis an emerging China. Given the increasing role of cyber in the defense space, a sectoral bilateral agreement focusing on IT and cybersecurity holds particularly advantageous geostrategic implications. More broadly, buttressing India’s economic growth potential could help redistribute the Indo-Pacific region’s economic focus, which currently centers on China. 

Nonetheless, a U.S.-India bilateral trade agreement does not come without political, economic, and infrastructural hurdles. Foremost, the Trump administration’s aim to decrease U.S. bilateral trade deficits with countries like India may preclude greater economic cooperation. The administration has recently chastised India for high tariffs, and filed a complaint with the World Trade Organization regarding export subsidies in the country.

However, an IT focus would allow both countries to fortify an area of mutual benefit while avoiding sectors that have historically caused friction. The bilateral nature of the agreement would enhance U.S. ability to utilize its market leverage to achieve Trump’s storied vision of a “good deal”.

A comprehensive bilateral trade agreement is also an opportunity to improve infrastructure and other ease-of-doing-business concerns in India, such as intellectual property legislation and banking sector investment.

U.S. Trade Representative Robert Lighthizer recently highlighted the strategic importance of expanding US bilateral trade presence in Asia, however, he earmarked countries such as the Philippines, Vietnam, Japan, and Malaysia as potential partners. This must be expanded to include India to fortify our economic connections with regional allies that are committed to our values.

Paula Stern, Ph.D., is president of The Stern Group and former chairwoman of the U.S. International Trade Commission.