As India, China edge closer on trade and commerce, New Delhi must maintain strategic balance between Beijing and Washington

It is said that a week is long time in politics. It could well be applied to foreign policy. Even as Doka La marked the lowest point in China-India ties, Washington and New Delhi have been growing rapidly closer. India found itself at the front and centre of Donald Trump's Afghanistan policy; its role as an 'Indo-Pacific power' and 'anchor of stability' was reinforced and the quadrilateral was brought out of cold storage and applied a fresh coat of paint. That was till yesterday.

On 9 March, the Trump administration slapped a 25 percent duty on steel and a 10 percent tariff on aluminum imported from all countries except Canada and Mexico. Little less than a month later, Trump levied 25 percent tariff on 1300 Chinese imports — amounting to $50 billion— to address the wide trade imbalance with China. Sparks flew. Beijing followed suit. Not to be outdone, Trump threatened an additional tariff worth $100 billion.

As the world braces for impact fearing a trade war between top two trading nations (in terms of export) India is presented with a set of hard choices, try as it might to refrain from taking sides in the dispute. Caught in a crossfire, New Delhi has since been trying desperately to maintain its strategic balance as the global trade framework undergoes massive revulsion.

Representational image. AFP

Representational image. AFP

Trump's moves set in motion a chain of events that may have intended and unintended consequences, including affecting India's burgeoning strategic relationship with the US. These are difficult times for New Delhi. It must strike a balance between normalising ties with China, pivot towards the US to hedge against Beijing's aggression and hold its own against the wave of protectionism blowing across US and Europe. A transactionalist Oval Office determined to erect trade barriers presents a set of challenges and opportunities. It requires India to do the trapeze act.

New Delhi's difficulty lies in managing its trade differences with the US while developing the strategic partnership. When it comes to China, the situation is reversed. It must manage the strategic threats posed by China's assertiveness while focusing on bilateral trade (though here, too, Beijing enjoys a decisive advantage). These contradictory currents forced from New Delhi a series of manouvers that started with the resumption of India-China Strategic Economic Dialogue (SED) this year.

During the high-level bilateral dialogue mechanism — that was suspended during the Doka La standoff — both countries pledged to expand their economic ties with India offering to step in to meet China's domestic demand for soybean and sugar after Beijing threatened a hefty retaliatory tariff on American soybean imports. China is the world's largest importer of soybean.

"You import a lot of agricultural products, up to $20 billion or more," NITI Aayog vice-chairman Rajiv Kumar said during the fifth edition of SED on Saturday. "I was noticing that there are some tariffs you imposed on farmers' from Iowa and Ohio. Maybe India can substitute for soybean and sugar, if we could access those exports with all the due quality considerations to our farmers. That is very useful," he told He Lifeng, chief of China's top planning body National Development and Reform Commission (NDRC), according to a PTI report.

Kumar's pitch was in conjunction with other proposals that were aimed at aligning 'Make in India' initiative with 'Made in China 2025'. He invited greater Chinese participation in the low-cost housing sector — a pet initiative of prime minister Narendra Modi — to provide a house for all Indians by 2022 and urged China to invest in "special clusters" such as textiles, leather, food processing, electronic components and pharmaceuticals, according to the report.

The NITI Ayog chief also called for increasing the number of working groups within the dialogue mechanism from the current five (infrastructure, hi-tech, energy, resource conservation and policy coordination) to seven (pharmaceuticals and culture) so that India may better access the Chinese market where Indian movies and active pharmaceutical ingredients (API) are in great demand.

Kumar also called for a more liberal visa regime and invited Chinese collaboration on "advanced R&D in renewable and solar energy in alternate materials for improving the lives of batteries," according to the report.

For his part, He Lifeng stressed on India and China sharing more areas of common interest than frictions and indicated that Beijing wants to carry on “our traditional friendly relations with India (and) create a new future”.

Coming close on the heels of NSA Ajit Doval's "unscheduled" meeting with his Chinese counterpart Yang Jiechi, the thrust of the engagements is clear. Both countries are keen on normalising their ties by using trade and commerce as the fulcrum to manage their strategic differences.

Kumar's pitch for a greater India-China economic cooperation, however, was accompanied by a thinly veiled criticism of the US. The NITI Ayog chief said the "synchronised recovery" in world economy "is marred and disrupted by unseemingly protectionist noises that are coming out from the Atlantic basin from North America and Europe." With India poised to grow just below 10 per cent for the next five years, "this will imply that India will join China, and work with China as an important anchor and driver of the global growth in the future." Despite Kumar's claim that India will "not take sides in the global trade war", his words seemed to echo Chinese position against Trump's tariff war.

It is no secret that this Oval Office considers India as much of a "trade cheat" as China is. Trump has frequently railed against the US being taken for a ride by countries such as India who enjoy a trade surplus vis-à-vis the US.

During a meeting of governors in February at the White House, Trump had said: "When they (Harley Davidson) send a motorcycle to India, as an example, they have to pay 100 percent tax — 100 per cent." In contrast, he said, the US gets "zero". "So when they have a motorbike — a big number, by the way — they have a company that does a lot of business. They have a motorcycle or a motorbike that comes into our country — the number is zero. We get zero."

The USTR (United States Trade Representative) has announced that it is reviewing the eligibility of India, Indonesia, and Kazakhstan in the Generalised System of Preferences (GSP) through which exporters get preferential market access to the US, leading to fears that Indian exports to the US might be adversely affected.

In this context, Kumar's stance at the SED might be construed as a pushback. China was quick to capitalise on India's position. Its state-controlled media called for the "developing world to unite against protectionism".

Quoting "experts", Global Times in an article called for "big developing countries like China and India" to "unite to face rising global protectionism and promote world trade" and added that India's offer of exporting soybean and sugar to China can be considered. "India's offer can be added to our list as an important alternative to expand the soybean market's diversification," the newspaper quoted Bai Ming, deputy director of the International Market Research Institute under the Ministry of Commerce, as saying. The article also carried favourable noises about aligning Make in India with Made in China.

The signaling is loud and clear. China wants India on its side in the 'trade war' against the US, as much as the US wants India to avoid aligning with Beijing. The US review of GSP programme — that allows duty-free entry for 3,500 products from India — may hit Indian exporters, but some say that at this stage it is more of a posturing from Washington.

Ajay Sahai, director general and CEO of the Federation of Indian Export Organizations, told Livemint that India "should not be too jittery about the announcement of a GSP review because it seems to be a posturing from the US, signalling India that it should not join China in its disputes against the US on steel and aluminium as it wants to bargain hard with China.”

Amid the signaling and counter-signaling, lest India's position on trade undermines its strategic partnership with the US, BJP national secretary Ram Madhav in a blog underlined the "mutual indispensability" that binds India and the US.

In his column for The Times of India, Madhav, whose importance in the Narendra Modi government far exceeds his designation, writes that the partnership between India and the US cannot be defined by trade alone. "India is an indispensable partner for the US primarily because of its geo-strategic significance… India has the world's third largest army, fourth largest air force and fifth largest navy. All three arms are being modernised fast. With its frontier technological superiority, the US becomes indispensable for India too. That is why this relationship is described as 'natural alliance'… Many have called it the 'defining relationship of the 21st century'."

It verily seems as if the column was intended to smoothen the rough edges that might develop due to India's compulsions to protect its "sovereign interests". While it pursues its strategic autonomy, India must mitigate more such geopolitical challenges in a global order that continues to stay in a state of flux.


Updated Date: Apr 16, 2018 20:55 PM

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