U.S.-India Commercial Ties: In Search of Ambition

February 10, 2021

No area of U.S.-India cooperation demands greater leader-level attention than our tense economic relationship. There is an urgent need to look beyond small challenges and craft a shared strategic vision that opens commercial opportunities for our firms while simultaneously protecting our respective strategic interests. We have hovered on the precipice of a wider collapse in our ties for some time. Our leaders cannot wait for the crisis to deepen—as we saw in 2013—before we put in real effort to find common ground. Strong economic ties will create growth and jobs in both nations. Sustained friction in our commercial relationship lowers the ceiling of our security partnership.

It is certainly unfair to ignore the very real commercial grievances on both sides. Higher customs duties, import substitution rules, new foreign investment protections, tightening business immigration rules, and similar steps are harming the commercial environment. And while bilateral goods trade was still going strong prior to Covid-19, this was partly driven by a handful of large, strategic purchases made by the government of India or its controlled entities in sectors like oil, natural gas, and defense. Goods trade dropped significantly in the months leading up to the onset of the pandemic.

A recent report by the Asian Development Bank, Drivers and Benefits of Enhancing Participation in Global Value Chains: Lessons for India, lays bare a stark set of data showing that low barriers to trade are crucial for India’s desire to enter global supply chains. But both our nations face massive goods trade deficits with the world. Voters demand programs to generate employment, and erecting barriers to imports is an easy solution.

India must consider alternatives to broadly applied trade barriers. Economic partners must be treated differently from strategic rivals. There is tremendous commonality in how the United States and India are looking at supply chains for a range of strategic goods including rare earths, energy, pharmaceutical precursors, communications equipment, digital trade flows, and more. Expanding our range of trading partners in such sectors is of paramount importance so that nations like China cannot use economic tools for political coercion. If our two countries cannot rally around trade cooperation in such sectors, we are voluntarily giving up one of our most potent tools to push against damaging changes to Asia’s security environment.

The United States, for its part, must step back from looking at trade ties purely as a game of cops and robbers. India should not be given carte blanche to block imports or impair U.S. investments. But we cannot withhold positive cooperation back until we see resolution of old disputes. We must find ways to move on both paths simultaneously. As we have vividly seen with our defense relationship, once we find some momentum in the smaller things like expanding exercises and personnel exchanges, we have a much easier time moving on to more difficult things like signing the defense foundation agreements and revitalizing the Quadrilateral Security Dialogue.

This means President Biden and Prime Minister Modi must personally commit to finding positive pathways for economic cooperation. Senior members of their direct teams must have responsibility for holding our respective line ministries accountable. Topics that have been considered “no-go” such as relaxing immigration restrictions and social security totalization cannot be dismissed by U.S. officials as “too hard.” Doing so provides their Indian counterparts with simple ways to dodge difficult issues on foreign investment liberalization, cross-border taxation, and other matters which may require political muscle from Delhi. My recent piece for the German Marshall Fund offers a range of sectors and types of agreements where the security overlay of some aspects of our economic relationship should overcome protectionist instincts in both capitals. To maintain momentum, our cabinet-level commercial dialogues must be reinvigorated and improved.

Our two countries concluded a historic agreement to open the doors for civilian nuclear cooperation. Our leaders must aim higher on our commercial relationship.

Richard M. Rossow is a senior adviser and the Wadhwani Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies in Washington, D.C.

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