By Bharat Karnad
The 2018 US Congressional Elections are over, and the Republican Party has lost control of the lower House in the legislature the House of Representatives rather decisively. What does this portend for India-US relations? The incoming Democratic Party Chairpersons of the various House committees (Ways & Means, Finance, Intelligence) have made plain their intention to hold Donald J. Trump accountable for a raft of acts of omission and commission in the 2014 presidential elections and since (in terms of hindering and obstructing the Congressionally-ordered investigation into Trump’s alleged wrongdoings headed by Robert Mueller).
His promise to respond by loosing the US Federal Bureau of Investigation (FBI) on the opposition leaders. Presupposing FBI plays ball the chances are it won’t, because unlike the CBI in this country, FBI is a separate and independent agency which zealously guards its functional autonomy, very soon, there may be a replication of our own intra-CBI kind of feuding in Washington, and generally for the situation to turn politically venomous. With the House of Representatives unwilling to give him a free pass, and stonewalling the president’s political agenda, what is Trump to do?
He may well decide that a series of rapid and stellar successes in the foreign policy arena may add lustre to his record. North Korea looms as possible success except there’s the equally unpredictable Kim Jong-un at the other end who will not take any guff from Trump and won’t play ball if that results in his looking a chump. Hence, the foreign trade area offers possibility of success by way of beefing up Trump’s “negotiator” credentials and helping win him a second term in office in the 2020 elections (assuming he isn’t impeached before then for crimes that Special Investigator Mueller’s Final Report may reveal in its findings).
He has already said that a trade agreement with China will happen soon. Because Xi Jinping is a hardball player and doesn’t blink in a face-off, and because China has reacted harshly to Washington’s imposts on Chinese goods and services accessing the American market of some $250 billion with retaliatory tariffs of its own on imports from the US, and indicated that it will not shy away from getting involved in a trade war if that’s what Trump wants, Trump has thought discretion the part of his gamesmanship and promised to be more accommodating.
There may still be a showdown of sorts a sort of shadow trade war but there will be no real change in the flow of two-way Sino-US trade now touching $635 billion featuring a trade deficit for the US of $ 376 billion in 2017. Given the strong economic interlinks the US can’t hurt China without hurting itself grievously, Washington will desist from doing anything really radical, like stopping the Chinese trade cold by imposing prohibitory levels of extra taxes on it, the proprieties of the World Trade Organization be damned! So Trump will “negotiate” some compromise and get enough back to crow to the American public about his success with Beijing.
That will play well with his political base in Middle America. But the corrections in the trade with China aren’t going to be enough for him to make a splash in an election year. He needs another, softer, target, a country that’s prepared to take US economic blows without counter-punching, and assures Washington of an easy prize. Narendra Modi’s India fits this slot nicely. Indeed, Trump has set India up a for a hit.
Trump and other US leaders never talk of China without also mentioning India, as one of two nations that are egregious in exploiting US’ free market, and how they ramp up trade imbalances without fear of the US government, when actually there is no comparison. The American trade deficit with India of $ 23 billion is dwarfed by that of China, but it is India that is disproportionately bearing the brunt.
Modi’s government has avoided inflicting counter-tariffs and held off saying much about Trump’s very determined bid to seal the H1B/L1 visa rules and regulations as part of the protectionist tenor of his policies, is mostly hurting the $150 billion Indian IT industry. This despite the Prime Minister and his cabinet colleagues pleading without effect with Trump directly and with his Administration for less taxing US policies. Indian IT majors that relied on shipping relatively low cost skilled labour are thus being compelled to hire Americans at high wages.
This is hurting their profit margins and dimming the till now bright spot on the economic exports scene. Before the shrinking of the H1B visa channel, Indian IT majors had estimated that their exports to the US would reach $50 billion by 2030. Those good times are gone. They will be lucky if they can retain the present levels of exports by value into the future. Currently the US, according to NASSCOM, off takes some 62% of the Indian exports of IT services-Business Process Management services of some $126 billion. Realizing it was slipping dangerously into a US dependent status, the Indian IT industry is now desperately trying to find and cultivate other markets.
Even as Trump has turned a deaf ear to Delhi’s entreaties on H1B and moved aggressively to restrict Indian exports with punishing tariffs, Modi has held off reciprocating as WTO rules allow in the hope that this show of tolerance will lead to Washington cutting it some slack. It hasn’t. Indeed, the BJP government’s willingness to absorb US trade hits has only worsened the trade terms for India and convinced Trump that Modi when pressured will squeak but won’t bite in terms of acting on second thoughts about strategically partnering the US and that India can be pushed around at no real cost to America. Trump is not wrong in believing this. US Modi has signed the two most significant “foundational accords” LEMOA and COMCASA, without heeding the downside of these agreements that all but turn India into a secondary military ally secondary, because unlike NATO member states, or Asian Treaty allies Japan, South Korea and Philippines, India gets nothing for putting out so much.
And, he is considering the performance-wise seriously awful US national air defence system missiles and antiquated F-16 combat aircraft in the hope that this will temper US’s attitude to Delhi continuing to buy military hardware from Russia when, in reality, it leaves the country just as exposed to CAATSA sanctions in the future.
In this context, why Modi feels close to Trump when the latter betrays no like feelings and the US has held India at an arm’s distance, and treats it as a third rate Third World country, and why Modi seeks by every means and at every turn to shrivel India’s standing in the world is hard to fathom. Playing second fiddle to America in the clash in Asia of the two natural giants India and China, is willfully to degrade India’s position. Whether India will ever recover its prestige and status vis a vis Asian countries from the parlous state Modi has shoved it into remains an open question.
