After the Chabahar exemption, India must push for a trade deal with the US

In a brief meeting — less than two hours in total — Presidents Donald Trump and Xi Jinping hammered out a truce in the trade tensions between the United States (US) and the People’s Republic of China. This was hardly a win for the US and for Mr Trump in particular; if anything, Mr Xi’s decision to refuse to give an inch on trade appears to have been vindicated. In return for ending its various restrictions and licensing requirements for the export of rare earths, Beijing has managed a postponement of Mr Trump’s hefty tariffs. This is not a reset, merely a pause. Nor is it an equal exchange, given that the export restrictions were just responses to the original American tariffs anyway. China has also agreed to buy at least 25 million tonnes of soybean from struggling Midwestern farmers. But that is less than it bought last year, before Mr Trump took office and inaugurated his trade war. In return, it will not face the punitive cumulative tariff rate of 100 per cent on its exports to the US. Its new cumulative tariff rate will be 47 per cent — still high but lower than India’s. In other words, China has halved its tariffs without conceding anything of substance to Mr Trump. 

The pause of the export restrictions on rare earths and magnets will be a particular relief to many places, including the European Union and India, which had been caught in the crossfire. Mr Xi made his point with the measures: There is no real way to keep high-tech manufacturing going without these items, and, if they are required, then countries have no alternative but to go through Chinese suppliers. Additional sources will have to be developed, and soon — but the fact is that China’s dominance in this supply chain has been understood since at least 2010, when it used similar restrictions against Japan. And no action, whether national or plurilateral, has been taken to address it yet.

 

Mr Xi has revealed his trump card, and it is time to develop a counter to it.  From India’s point of view, the truce means that its exporters once again face the highest US tariff rate, of 50 per cent. The US was more eager to make a deal with China than it is with India — but that may change if the terms are sweetened considerably, and if Prime Minister Narendra Modi brings his reputation for personal diplomacy to bear. There are certainly one or two hopeful indicators that the bilateral relations have not declined beyond repair. For example, while Washington had earlier suspended the exemption from sanctions on Iran granted to India for its strategically important Chabahar port, it has now been learned that six more months of that exemption have been granted. In addition last week India and the US signed a decade-long framework agreement on defence cooperation.

 

Clearly, there are ways in which those who continue to believe in the partnership in both capitals can continue to work together. Some of that spirit must now be brought back to trade. There is no practical reason for India to be facing such tariffs. The Indian side is reportedly in constant touch with US negotiators, and both countries must urgently address all pending issues to arrive at a mutually beneficial trade deal.