Amid trade disorder, India must reconsider CPTPP, integrate with Asean, EU

While this process may take a while given the state of uncertainty and disorder that prevails in the global trade architecture, to demonstrate India's commitment to a particular direction of travel

Time is running out on the 90-day “pause” that United States (US) President Donald Trump declared in his trade war against the rest of the world. The countdown will end on July 8, when his retributive tariffs are supposed to come back into effect. The US administration had promised that some trade deals would be announced before then, and it has said at various points that up to 90 different negotiations are ongoing. But so far only one, with the United Kingdom (UK), has been announced. There is no sign that other negotiations, including those with India, are going as well. In any case, the “baseline” 10 per cent tariff Mr Trump had initiated will stay — it has stayed as part of the deal with the UK. That tariff has had an emboldening effect for the US administration because it has raised billions in revenue, which helps finance its tax-cutting plans and has also had a very limited impact on inflation so far. While Mr Trump’s disruptions to global trade may have for now taken the back seat to the disorder in West Asia, that moment will not last. Very shortly, India and the world will once again have to deal with the prospect of a more fragmented trading system. 

 

India’s path forward under these circumstances is obvious: To continue to try to get a deal out of the US that increases its competitive advantage, while also signing up to other deals with more trade-friendly partners. The government’s initial scepticism about trade has thankfully given way more recently to a willingness to conclude various deals. In the past years, free-trade agreements, early-harvest deals, or comprehensive economic partnerships have been signed with various other nations, including Australia, the United Arab Emirates, and the UK. But these are frankly not ambitious enough to make up for the disorder that the US will inject into trade. It is essential, first of all, that the ongoing negotiations with the European Union, which has the highest potential among all partners for mutual prosperity, be successfully concluded on the timeline given by Prime Minister Narendra Modi — namely, the end of this year.

 

But integration into value chains means India must also consider the manufacturing hubs to its east. Recent comments describing the Association of Southeast Asian Nations (Asean) as China’s “B-team” are unhelpful in this context. The fact is that integration with Asean and the rest of Asia ex-China will be essential if India is to upgrade its manufacturing and become globally competitive. From an economic perspective, this means that entering into mega pacts, such as the Regional Comprehensive Economic Partnership (RCEP), is a sensible way forward. However, given that mainland China is part of the RCEP, it might be considered politically infeasible until relations improve. That objection does not hold, however, for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP. At the very least, India should submit an application for this trade pact, which would deepen its integration with major investors into the Indian market like Japan and Korea. It would also allow for a clear road map forward for regulatory reform domestically to bring Indian regulations up to global standards and make its exports more competitive. While this process may take a while, it is important, given the state of uncertainty and disorder that prevails in the global trade architecture, to demonstrate India’s commitment to a particular direction of travel.