India-US trade deal hopes rise but the reliability part remains in doubt

United States (US) Commerce Secretary Howard Lutnick this week said that he was “very optimistic” that a trade deal with India could be agreed in an accelerated timeframe — before, in fact, the July deadline, which marks the end of the 90-day “pause” on the US’ high retributive tariffs. This sounds like excellent news, but should also be greeted with some scepticism. India’s negotiators have not made it a secret that they are not so certain that any initial deal can be comprehensive enough to satisfy stakeholders. It may be limited to certain sectors that are politically important to the current US administration. However, it may include certain agricultural sectors as well, which would be a significant concession from India.

 

While it is essential that the government do its best to avoid being hit with high tariffs, it should also keep in mind that any deal with the US is subject to the vagaries of its leadership and changes in the political and legal climate. Judicial challenges to various tariff decisions taken by US President Donald Trump are already evident. It is also not clear whether the US Congress, although dominated by his party, would support whatever Mr Trump finally decides — and, technically, trade deals are the province of the legislature and not the executive. The powers to assent might be retrieved by the legislature at any time. And, of course, there is Mr Trump’s impulsiveness, which too must be taken into account. There can be little doubt that any deal with India, if the popular response among his base is not entirely favourable, might well be unilaterally revoked at any time — regardless of the legal basis for such a revocation.

 

Given that the US is going through the sort of political turmoil that makes it an unreliable partner, India cannot afford to put all its eggs in one basket when it comes to trade. The fact is that, like everyone else in the world, it will find it necessary to identify other trading partners with which it can enter into rule-based, reliable agreements. Trading links cannot be built or sustained under the sort of volatile circumstances that currently exist in the US. Rules and reliability are required for the investment of time and capital that underlie strong trade links. India should thus maintain some firm lines while negotiating with the US, but lower its demands with those that demonstrate a willingness to follow such rules.

 

There are many such possibilities, some of which have a similarly short time horizon. The leaders of India and the European Union, for example, have also promised that a deal will be agreed upon by the end of the year. Given that this will certainly be rule-based and reliable, it should be a priority, and New Delhi must make the commitments required to get it over the finishing line. But it need not stop there. It must take a fresh look at various plurilateral blocs and re-evaluate their usefulness in this new age of trade. India might not have joined the Regional Comprehensive Economic Partnership for fear of joining a grouping that includes China, but times have clearly changed since then and the impossibility of cutting Chinese goods or investment completely out of value chains is now better understood. Higher-quality agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership should also be scrutinised once again, and regulatory changes put into motion that will allow India to approach candidate status. Rule-based arrangements remain the gold standard for trade.