If it wants to boost exports, the country may have to follow the example of China and engage better with each U.S. State

The United States is the nation that Narendra Modi has visited the most as Prime Minister – four times so far. Mr. Modi will soon top this up with another tour — likely later this month, which will be his first after Donald Trump became the President. This signifies the importance attached to the New Delhi-Washington ties in the NDA government’s foreign policy priorities.

However, it is still to be seen whether Mr. Modi’s fifth U.S. visit will be restricted to striking up an acquaintance with Mr. Trump, or if it will witness substantive discussions on various contentious issues — especially relating to trade and investment that are now playing a defining role in bilateral ties.

According to the joint statement during Mr. Modi’s first visit to the U.S. in September 2014, two-way trade had risen five-fold since 2001 to about $100 billion. It also said that necessary action would be taken to increase this to $500 billion. However, since Mr. Modi’s fourth visit to the U.S. in June 2016 during the presidency of Barack Obama, much has changed in terms of Washington’s policy and outlook, generally, on trade.

Soon after taking charge as President, Mr. Trump — in line with the promise he made during the election campaign — signed a memorandum in January 2017 directing the U.S. Trade Representative (USTR) to “withdraw the U.S. as a signatory to the Trans-Pacific Partnership (TPP), to permanently withdraw the U.S. from TPP negotiations.”

The TPP is a mega-regional trade agreement that was inked by 12 nations, including the U.S., during the previous administration.

The memorandum signed by Mr. Trump also directed the USTR to “begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.”

‘Method in action’

Amiya Chandra, joint director general of foreign trade and the author of the recently released book Indian Foreign Trade: Trumped Up or Down — on ‘demystifying Mr. Trump’s dealmaking approach and ways to strengthen India-U.S. trade ties’ — says: “You may call him [Mr. Trump] a bull in a china shop or whatever, but there seems to be a method in his so-called madness. If you can understand his dealmaking style, you will be able to deal with him better.”

The Office of the USTR, on March 1, clearly outlined Mr. Trump’s radical shift in approach on trade and its reasons in ‘the (U.S.) President’s Trade Policy Agenda 2017’. The seven-page document states that in 2016, (U.S.) voters called for a fundamental change in direction of the U.S. trade policy and that, therefore, President Trump had called for a new approach.

The document said every action taken by the Trump administration on trade would be designed, among others, to promote job creation in the U.S., strengthen America’s manufacturing base and expand its agricultural and services industry exports.

It further said “these [new] goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations” — a move that could impact (in terms of direction, substance and pace) World Trade Organisation-level trade negotiations and indirectly even other proposed mega regionals such as the Regional Comprehensive Economic Partnership (a trade pact proposed between 16 Asia-Pacific nations including India) that the U.S. is not part of.

As regards the Trump administration’s focus on bilateral trade deals, when asked in April whether he favoured an India-U.S. Free Trade Agreement (FTA), U.S. Commerce Secretary Wilbur Ross said, “... there’s no inherent negative attitude on our part relating to that.”

Mr. Ross, however, said he did not “believe that there have been any serious discussions with India of late on the topic of an FTA.” Instead of an FTA, India and the U.S. had begun talks in August 2009 on a Bilateral Investment Treaty to promote and protect two-way investment, but those negotiations are not close to conclusion.

Though bilateralism might get more traction than multilateralism under the Trump administration, another significant aspect of Mr. Trump’s Trade Policy Agenda 2017 was that it “rejected the notion that the U.S. should, for putative geopolitical advantage, turn a blind eye to unfair trade practices that disadvantage American workers, farmers, ranchers, and businesses in global markets.”

Deficit, a worry

What is causing worry to the Trump administration is the U.S. trade deficit, particularly on the goods front. “In 2000, the U.S. [overall] trade deficit in manufactured goods was $317 billion. Last year, it was $648 billion — an increase of 100%,” said the policy agenda. While agreeing that a rising trade deficit may be consistent with a stronger economy, the Trump administration said the real median household income in the U.S. remains lower today than it was 16 years ago and that there had been a loss of almost five million jobs since January 2000.

Mr. Trump followed up the reshaping of the U.S. trade policy agenda with an Executive Order on March 31 seeking an ‘Omnibus Report’ from the Commerce Secretary and the USTR (in consultation with other U.S. government departments or agencies) within 90 days on ‘Significant Trade Deficits’.

As per the U.S. government, the trading partners with which the U.S. had a ‘significant’ trade deficit in goods in 2016 included India. In 2016, the U.S. had a goods trade deficit of $24.3 billion and a services trade deficit of $6.5 billion with India — taking the total trade deficit to $30.8 billion.

As per Mr. Trump’s Executive Order, “unfair and discriminatory practices by our trading partners can deny Americans the benefits that would otherwise accrue from free and fair trade…” In 2016, the U.S.’ overall trade deficit in goods was $750.1 billion, while the overall goods and services trade deficit was $502.3 billion (the largest since 2012).

The Hindu had reported that the Confederation of Indian Industry (CII) in its recent submission to the U.S. government had, however, stated that: “… during 2011-2015, India’s contribution to the overall trade deficit of the U.S. was only 2.5% (average).

Thus, India’s share in overall U.S. trade deficit is too insignificant to cause any adverse impact on the U.S. economy.” In its arguments against the allegation that American manufacturers are challenged by India’s “excessively high tariffs on imports of a range of manufactured products”, the CII said, “the major products that the U.S. exports to India have tariffs between 0-10%. This is lower than the tariffs other countries place on the same products in which the U.S. trades.”

Boosting trade

To boost trade and investment ties with the U.S., India’s traditional approach has been to focus mainly at the national level and take up the industry’s concerns mostly with the U.S. Federal Government in Washington D.C — be it on the U.S. visa curbs largely affecting the Indian IT sector or the U.S. ‘non-tariff barriers’ including those imposed under laws relating to national security, bio-terrorism, ‘Buy America’ norms preferring U.S.-made items and American suppliers in U.S. government purchases, child-labour, registration fee increases (in sectors such as pharma), food safety as well as animal and plant health regulations, all affecting Indian exports.

However, a more effective strategy would be to go in for greater engagement separately with the 50 States of that country. Public policy think-tank American Enterprise Institute (AEI), using U.S. Census Bureau data, showed that in 2016, China was the ‘top import country’ for 23 U.S. States, followed by Canada (14 U.S. States) and Mexico (4).

Also, Canada was the ‘top export country’ for 33 U.S. States, followed by Mexico (6) and China (4).

While Canada and Mexico have the advantage of having a free trade pact (NAFTA) and close geographic proximity with the U.S., China gained its place among the ‘top five import countries’ in all U.S. States through a State-wise strategy that involved massive publicity for its products, celebrity endorsements and greater support for its exports to the U.S., said Mr. Chandra.

In 2016, India was neither a ‘top import country’ nor a ‘top export country’ for any of the U.S. States despite the U.S. being India’s top export destination and second-largest source of imports. “We also need to evolve a similar state-wise strategy if we want to be in the top five list and further boost our exports,” added Mr. Chandra.