More trade with India helps US

Under the Trump administration, India-US trade relations were expected to improve. But the opposite has happened with market dynamics now challenging even status quo. Figures show that total bilateral trade of goods and services between India and the US reached $126 billion in 2017, up 10.4 per cent from $114.2 billion level in 2016. The US was then India’s second-largest trading partner, with a total goods worth of trade of $74.3 billion in 2017.

India’s goods trade surplus with the US also expanded to $22.9 billion in 2017, which is much higher than the total bilateral goods trade of $14.35 billion in 2000. During this period, India significantly strengthened its services economy, ensuring that the services export to the US gradually improved, resulting in a surplus of $5.6 billion by 2017. 

There are many reasons for India’s growth in the export of goods and services to the US. India’s strong push for borderless trade has helped in improving domestic competency, resulting in higher export of Indian goods and services. In the process, India’s stand in the global market as a ‘country of origin’ has been much enhanced. Now, ‘Brand India’ is regarded as fiercely competitive, with better global acceptability, challenging even the strongest of the economies in the world. 

However, the Trump administration has been looking to change this, not just with India, but with other countries too. Tirelessly pushing for a reduction in the US-India trade deficit; President Trump is also trying to take on China as well. Despite all attempts, the US’s trade deficit with China increased to $375 billion in 2017 from $347 billion in 2016, which is why we have seen the war of words between the two countries.

While attacking China, the Trump administration also seems to be worried about its trade deficit with India, which incidentally declined last year by $1.45 billion. But it must treat India’s position differently. As compared to China-US trade, India-US trade is at an infancy stage with immense potential to grow. The US-India Strategic Partnership Forum estimates that Indo-US bilateral trade has the potential to go beyond $210 billion by 2021. Therefore, actions should be taken to promote bilateral trade rather than restrict it. On both sides, protectionist measures need to be kept to the minimum and innovative trade promotion measures must be implemented to expand trade. 

India and the US have massive potential to explore newer avenues of trade. Bilateral trade growth could be unlocked in areas like energy, services, infrastructure solutions, and IT solutions. Then, the US’s policy change on export of natural gas beyond Most Favoured Nations (MFN) opens up vast opportunities for India, which could dramatically change the trade dynamics in the future. Similarly, rising US crude oil production and its availability for exports have already benefited few Indian refiners. In the coming years, sourcing of oil and natural gas from the US is clearly visible as steps are being taken to reduce India’s over-dependence on the Middle-East for oil and gas imports. In this context, India-US bilateral trade is poised to receive a quantum jump through the oil and gas trade. 

This is where the US-India Natural Gas Task Force can play a helping hand. Comprising industry experts, this joint task force can work on actionable recommendations to increase natural gas penetration in India. Considering current market dynamics, the import of liquefied natural gas (LNG) from the US is projected to rise, which will make President Trump happy. India’s import of crude oil and LNG is a very good sign for prospering bilateral trade, which would certainly have a spiralling effect on both economies and the bilateral relationship. 

India’s renewable energy sector is rapidly expanding, which offers great potential for bilateral trade. Especially, in the field of solar and wind power, the US has the opportunity to realise its export potential to India. It is to be noted here that since 2013, the US and India are fighting a battle in the World Trade Organization (WTO) over certain measures, relating to solar cells and solar modules. An early settlement of the dispute is highly desirable to capitalise on existing and future mutual trade opportunities. Other areas which need concerted effort to expand bilateral trade include services like financial, healthcare, and consultancy. Services in emerging fields like infrastructure, construction and smart cities in India could offer enormous opportunity for US service providers. 

There are many opportunities for Indian firms in the US.  For instance, it is heartening to see Tata Consultancy Services (TCS) making it to the league of $100 billion market capitalisation. Such a development will naturally excite other Indian firms to strive hard to exploit global market opportunities, especially in the US. A talented workforce could work in India and develop exportable products to strengthen the revenues of the multinationals here.  

Of course, Indian firms should be cautious of emerging regulatory and market driven challenges. The Trump administration’s move to withdraw benefits extended to H-1B visa holders may dampen the spirit of the IT industry in India. Then the US’s new found love for free and fair reciprocal trade, leading to imposition of tariffs has created massive uproar in China. The resulting trade war, in the process, can cause developing countries like India to suffer as such moves will impact the global economy. Nevertheless, while India should carefully watch the actions of the US, it must convince President Trump that free trade with India is in America’s best interests. 

The author is Associate Professor & Head, Department of Management Studies, Rajiv Gandhi Institute of Petroleum Technology, Jais. Views are personal.