For four years, Indians sensed that the US was terrified of the word “trade.” Joint statements after summits buried trade such issues somewhere near the end; officials avoided the question at press conferences, preferring to focus instead on relatively esoteric concerns such as cooperation in space.
For better or worse — but mainly for better — that has changed under President Donald Trump. The big news out of his meeting with Prime Minister Narendra Modi on Thursday was that the two leaders committed to negotiating the first tranche of a “mutually beneficial” trade agreement by fall.
Asking for a “free trade agreement” instead of merely a “trade agreement” might have been too optimistic, but this is still a step forward for an economic relationship that was stagnant at best. It matters for more than just India. Policymakers from countries across the Indo-Pacific who had given up on discussing market access to the US will feel energized.
We don’t yet know what such an agreement would include, and if either side has the capacity currently to negotiate something meaningful on such a tight schedule. We do know that, in Trump’s last months in power, the Indians thought they had gotten quite close to a similar deal. When he lost re-election, any potential agreement was taken off the table. If the two sides pick up from where they left off in 2020, the fall timetable doesn’t look impossible.
Trump, as we all know, thinks that America has gained too little from trade. Before he met Modi, he had warned that India was among the highest-tariff nations in the world, and outlined a plan to impose reciprocal levies on all US partners. Yet he is willing to negotiate over market access, when his predecessor wasn’t. That is because the Biden administration thought it needed to remake the global economic order; Trump just wants a better deal to sell to his voters. One is a realistic ambition, the other deluded.
Impulsive populists may find it easier to make deals than politicians who seek some kind of ideological framework or justification for their decisions. Leaders like Trump or Modi look first at the immediate, popular impact of policy announcements. They see no need for caution or consistency.
Judging by the initial reaction in India, Modi’s audience doesn’t care if the country drops tariffs. His voters are far more concerned about counter-terror and defense. Their focus will be, for example, on news that a Canadian citizen in US jails accused of involvement with the 2008 terror attacks in Mumbai is to be extradited by Trump. Or that the US would clear procedural hurdles to India’s purchase of the F-35 — though New Delhi certainly doesn’t have the money for such a pricey plane at the moment. By giving Modi these big wins at no cost to himself, Trump creates the space for India to concede a bit on trade.
Objectively, India is the perfect partner for Trump: It suffers less than its peers from across-the-board tariffs the US might impose, and it has the most scope to reduce its own levies on goods that Trump cares about, from cars to farm produce.
In fact, New Delhi has already begun dropping duties. The federal budget announced earlier this month reversed a years-long trend towards protectionism by lowering average tariffs by a percentage point. Officials justified it by saying that giving in to domestic protection-seeking lobbies would lead to inefficiencies in the manufacturing sector.
But this shift in policy was, in large part, a Trump effect. That was clear from the specific sectors where tariffs have been dropped. India’s government gave the game away went it highlighted the fact that import duties on motorcycle imports had been cut. Trump has long been obsessed by the levies that Harley-Davidson bikes pay to enter the Indian market.
Trump may have done Indians a favor. Rolling back this country’s turn to protectionism is long overdue. High and inconsistent tariffs prevented India’s producers from entering global supply chains. Meanwhile, imports from China — the main vulnerability that officials wanted to address through import taxes — continue to grow. Economic resilience comes from productivity improvements and greater competitiveness, not through cutting oneself off from the world.
These truths might be irrelevant to Trump and Modi, who are just looking for a quick win when they direct their officials to negotiate a new trade agreement. But that doesn’t make them less true. The populists have got us talking about trade again, and that’s a good thing.
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