India-UK trade deal signals that globalisation momentum remains strong

By Mihir S Sharma

 

President Donald Trump may say “tariffs” are his favorite word, but the rest of the world doesn’t have to agree. With or without America, trade deals continue to be signed: On Tuesday, India finalised a pact with the UK after three years of negotiations.

 

This agreement clearly reflects the importance of political momentum and compromise. Indian Prime Minister Narendra Modi and his UK counterpart, Keir Starmer, probably had to push their officials over the finish line themselves. As recently as a few days ago, stories about how many issues remained to be resolved filled the papers. It is still possible, even in an uncertain world, for countries to take a punt on economic integration. 

 

But it can only happen if politicians are willing to surrender some control. India’s famously tetchy negotiators had to give up on several long-standing demands. Previous attempts at trade agreements with Britain had foundered over labor migration: New Delhi wanted more visas for Indian workers and students. But the political climate in the UK no longer allows that — the anti-migrant Reform Party made stunning gains in local elections last week — and such provisions have been drastically watered down in the final deal.

 

Perhaps India found it easier to drop tariffs with the UK because neither is good at making things anymore. Manufacturing is not globally competitive in either India or Britain. Both have world-beating services sectors, though. It will be interesting to see if the fine print exposes powerful interest groups like New Delhi’s law firms to competition. 

 

Officials in Whitehall are proud of themselves, claiming that it will increase UK GDP by £4.8 billion ($6.4 billion), and real wages by 0.2 per cent. Their press release also promised Britons will gain access to cheaper shrimp.

 

That’s no small thing. The agricultural sector has been a third rail in such negotiations for so long that it’s a shock to hear of a pact that centers trade in food. More than that, it is refreshing in today’s climate to hear people in power talk up the benefits that consumers gain from trade. 

 

And they will definitely do well out of this deal. Scotch whisky and Jaguars will get cheaper in India, and we will consume more of both (hopefully not at the same time). Meanwhile, Indians in Britain will wish this means they can finally buy proper mangoes in their local supermarket, instead of shamefacedly ordering smuggled cartons from bootleggers in Slough.

 

India and the UK aren’t alone in trying to give consumers a better deal in recent years. Canada, which has so much to lose from an autarkic America, is implementing a new economic partnership with Indonesia. It is also chasing one with the entire Asean bloc, and trade representatives have “agreed to work towards concluding negotiations” for a free-trade agreement this year. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is considering adding new partners, including Indonesia and some Central American nations. Trade ministers from Japan, China and South Korea pledged in March to deepen trilateral cooperation and keep the exchange of goods going.

 

The biggest single prize is a trade agreement between India and the European Union. This has been in the works for decades, but politicians have promised it will be concluded by the end of the year. Hopefully, the Modi that pushed the UK deal through will be willing to make the deeper compromises needed for a far more consequential pact with Europe. 

 

And then, of course, there are the 70-plus trade deals that the Trump administration will supposedly negotiate before its 90-day “pause” on tariffs runs out. Modi’s trade ministry deserves credit for getting a deal with the UK done when most observers thought they would be completely absorbed in working out what Washington wants.

 

Treasury Secretary Scott Bessent has promised that India would be “one of the first” agreements that the US would sign. If so, perhaps New Delhi’s concessions to Britain are a glimpse of what it will offer Trump. And perhaps the need to hand such concessions to the US made it easier to give them to Britain. It would be ironic if tariff-loving Trump turns out to be the person who pushes India, Asia and the rest of the world to overcome their hesitations about trade.  (Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)