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India-U.S. Ties Under Pressure From Trade Disputes

It shouldn’t have come to this but it has. The India-U.S. relationship is being held hostage to trade disputes and a growing list of demands on the strategic front.

The many litmus tests from Washington have introduced a sense of unease, straining the firewall between trade problems that are perennial and the larger India-U.S. strategic partnership.

As U.S. Secretary of State Mike Pompeo heads to India next week to talk things over, the hope is for a breakthrough to put things back on track. It would be the first high-level contact between the two governments after Prime Minister Narendra Modi’s re-election. U.S. officials see Modi’s massive mandate as a “unique opportunity to broaden and deepen” the partnership.

Pompeo’s conversation with External Affairs Minister S. Jaishankar will no doubt be candid as the two size up the problems and each other. The hardliner will meet the realist.

While the trajectory of Indo-U.S. relations remains broadly positive, the list of contentious issues has grown long under President Donald Trump. His primary obsession with trade issues has injected a level of unpredictability in U.S. relations with many countries, including India.

On the strategic front, the Trump administration has asked India to stop buying oil from Iran and Venezuela and sophisticated weapons from Russia. The warnings that India could potentially come under anti-Russia sanctions for its decision to buy the Russian S-400 air defence system have grown more serious.

U.S. officials have said the scope of future defence sales could be seriously compromised if India goes ahead with the S-400. But the final decision rests with Trump.

A senior State Department official said Pompeo will also discuss further cooperation on India’s energy security—meaning that India could buy more U.S. oil to meet the shortfall. For the foreseeable future, U.S. pressure on Iran will remain unless Tehran stops its “destabilising behaviour in the region,” the official said. In short, Iranian oil will stay off the market for some time to come.

In addition, Pompeo is expected to make the case against Huawei and ask India to join U.S. efforts to bar the Chinese company in 5G trials. To be sure, India has its own concerns about Huawei and agrees that firewalls alone won’t be enough to ward off the threat of Chinese penetration.

On the trade front, Pompeo will echo U.S. Trade Representative Robert Lighthizer’s demands in New Delhi. Lighthizer, a hardliner who calls the shots on all things trade, seems unconcerned about the wider fallout of his punitive actions.

Currently, Lighthizer is pushing India on several trade issues. He wants New Delhi to give more market access, change e-commerce and data localisation rules, reduce tariffs on U.S. products and tighten intellectual property laws—to name just a few.

Earlier this month, Trump withdrew duty-free privileges for more than $5 billion worth of Indian exports under the Generalized System of Preferences on grounds that New Delhi was denying market access to U.S. products. In addition, Indian H-1B visa holders are under pressure and face greater denial.

A recent news report that the U.S. was considering caps on H-1B visas in retaliation for India’s decision to ask foreign companies to store data locally created further disquiet. The State Department has denied the report, saying no “such plan” was in the works.

The denial is unlikely to calm the waters or get results the Trump administration wants in the long run. But Lighthizer apparently has Trump’s ear and full authority to push the trade agenda.

Days before Pompeo’s departure, Lighthizer told the U.S. Congress that Trump withdraw GSP benefits to India “because we made literally no headway on the issues over the course of months and months and months.”

He also warned of additional penalties because of a “variety of unfair actions” by India. He was referring to retaliatory tariffs on 28 U.S. products imposed by India last week after New Delhi waited for more than a year to respond to U.S. tariffs on steel and aluminium.

Lighthizer then went on a tirade about India being a “statist economy” with “about the highest tariffs in the world.” He accused India of creating problems “in the digital space, in the agricultural space, in regular manufacturing, retail… just across the board.”

The comments were in response to a suggestion by Congressman George Holding to spend time and resources to talk through the problems with India.

But the Trump administration doesn’t seem inclined in that direction. It appears to believe in alienating friends and making the world a harder place.

(The author is a Washington-based columnist. Views are personal)

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