23 January 2025 : Indian Express Editorial Analysis

1. Doing business with Trump

(Source – Indian Express, Section – The Ideas Page – Page No. – 11)

Analysis of the news:

America First Trade Policy: Focusing on China and North America

• President Donald Trump heralded the “Golden Age of America” with his America First trade strategy.
• The initial focus of these policies was China, which continues to face scrutiny for its non-market policies and practices (NMPP).
• However, Trump’s approach also provides a reprieve for North American neighbors like Mexico and Canada, signaling opportunities for trade negotiations while maintaining reciprocity.
• His initial announcements offered space for dialogue, challenging earlier fears about his leadership style.

Addressing Non-Market Practices and Supply Chain Traceability

• A key aspect of Trump’s trade policy is addressing China’s use of third-party countries to exploit the U.S. economy.
• The Quadrennial Supply Chain Review advocates reforms in trade policies, including proposed amendments to Articles 301 and 201.
• These amendments aim to enhance traceability in global trade and prevent circumvention of trade measures.
• Additionally, Trump’s administration has recommended pooling resources from Treasury, Commerce, and Homeland Security to streamline external revenue enforcement, shifting the focus from Customs and Border Protection.

Implications for India Amidst a US-China Trade War

Risks of Dumping and Market Diversion

• A U.S.-China trade war poses challenges for India. China’s production shifts and market diversions may lead to the dumping of goods in India and disrupt Indian exports to developing regions like Africa.
• India must remain vigilant about these risks while bolstering its trade policies to mitigate potential fallout.

Dependency on H-1B Visas for Services

• India’s dominance in the U.S. services sector is underpinned by H-1B visa dependency. However, traditional service delivery models, such as Business Process Outsourcing (BPO), face diminishing returns due to changing global dynamics.
• India must diversify its service offerings, emphasizing professional services, Maintenance, Repair, and Overhaul (MRO) services, and emerging sub-sectors to remain competitive.

Strengthening US-India Collaborations

• Efforts to simplify the H-1B visa process and expand quotas for Indian students reflect India’s proactive engagement with the U.S. administration.
• While China’s share in this domain is significantly lower, India’s emphasis on fostering linkages in areas like artificial intelligence and synthetic biology could strengthen bilateral ties.
• Continuous dialogue will be critical to transcending short-term hurdles and building a robust partnership.

Challenges and Opportunities in U.S. Trade Deficit

Key Contributors to the Trade Deficit

• The U.S. trade deficit, standing at $1.05 trillion in 2023, highlights significant imbalances.
• China leads with a 30% share, followed by Mexico, the European Union, and Canada. India, ranking ninth with a surplus of $33 billion, presents a mixed trade pattern.
• For example, India imports $13 billion in primary goods but exports only $1 billion, whereas it exports $27 billion in consumption goods and imports only $2 billion.

Importance of Nuanced Trade Analysis

• The trade imbalance underscores the need for a sector-specific approach in India-U.S. trade.
• Balancing imports and exports across various product categories is crucial to fostering a mutually beneficial partnership.
• Addressing these disparities requires comprehensive policies that encourage trade expansion rather than contraction.

Strengthening Trade Partnerships: A Way Forward

Indo-Pacific Economic Framework and Future Prospects

• India’s commitment to three of the four pillars of the Indo-Pacific Economic Framework (IPEF) – supply chains, clean energy, and anti-corruption – underscores its willingness to engage in deeper trade cooperation.
• A calibrated free trade agreement between India and the U.S. appears promising, especially given the shared focus on stable supply chains and economic resilience.

Institutional Mechanisms for Long-Term Partnership

• To sustain and elevate trade relations, the India-U.S. partnership must adopt a holistic approach.
• Establishing institutional mechanisms to integrate trade, investment, technology, and finance is essential for long-term collaboration.
• These mechanisms can help India prepare for broader trade opportunities beyond the U.S. and align with emerging global trends.

Conclusion:

• Trump’s trade policies mark a significant shift in U.S. economic strategy, with implications for global partners like India.
• While challenges such as trade deficits, market dumping, and H-1B dependencies persist, opportunities for cooperation in technology, services, and supply chain management offer a path forward.
• For India, leveraging these opportunities while navigating the complexities of U.S. trade policies is key to maintaining a strong and sustainable partnership.