A Carter Initiative for U.S.-India Trade Ties

Contributor: Kriti Upadhyaya

When the United States lost the medium multi-role combat aircraft competition in 2011, many in Washington gave up on India, stating it had chosen an airplane over a relationship. But then-deputy secretary of defense Ashton Carter had the foresight to gauge the potential of U.S.-India defense ties, and he immediately championed setting up the Defense Technology and Trade Initiative (DTTI). The new Biden administration has an opportunity to apply Carter’s wisdom to trade ties with India. Since trade differences that emerged during the previous administration will persist, the two countries, more than ever, need a new Carter initiative to build on mutual strengths, ensure and solidify small wins, and create a more promising future, together. 
 
Since March 2018, U.S.-India trade has been growing steadily at an average of more than 12 percent year over year until the onset of the Covid-19 pandemic. But despite total trade amounting to $77.5 billion from the period of November 2019-November 2020, U.S.-India trade only constitutes a mere 2 percent of total U.S. international trade. 
 
The Trump era saw trade ties grow steadily, but both countries also let their respective trade deficits guide trade policy. Protectionist and populist urges meant that both the United States and India slapped tariffs and counter-tariffs on each other. The Biden administration is less likely to be driven by populist impulses and may also open new avenues for trade cooperation, such as environmental goods and green technologies. Expansion and predictability in temporary work visas like H-1B will be welcome news for the services trade, but the visa reform the Biden administration promised will likely only benefit skilled workers.
 
Protectionist tendencies will endure in the near term, mostly owing to the pressures created by the Covid-19 pandemic. Already, the pandemic has set bilateral trade with India back. India slipped from being the United States’ ninth-largest trading partner to its eleventh largest. It is unlikely that President Biden will reinstate India’s benefits unilaterally under the Generalized System of Preferences program. And a host of issues where the two countries do not see eye to eye will remain, such as the digital services tax, data localization, intellectual property, agricultural market access, and medical device tariffs. As a result, any far-reaching trade deal is unlikely anytime soon. 
 
Despite these challenges, the Biden administration has the opportunity to invest in the U.S.-India trade relationship by looking past some of the more persistent differences and focusing on long-term gains. Besides the strategic imperative of pivoting away from the United States’ top trading partner—China, strengthening U.S.-India trade ties has other benefits, including includes access to cheaper inputs, more diverse supply chains, and one of the largest consumer markets. Being an early investor in India’s growing economic story can also ensure a first-mover advantage for the United States. The Biden administration can usher a new era of trade ties by:  
 

1. Building on mutual strengths. Services trade forms a significant chunk of total bilateral trade, and the trade balance in this area is much narrower, making it the most promising part of the trade relationship. Consequently, the Biden administration should prioritize negotiation of a services trade agreement with India. Predictability in movement of persons, data flows, common protocols and standard operating procedures, and stronger trade secret protection can considerably reduce barriers and boost the one part of the trade relationship that is working well.  
2. Ensuring momentum through small wins. Biden and Prime Minister Modi’s commitment to addressing climate change can ensure enough momentum to work toward a bilateral environmental goods agreement (EGA). Similarly, notwithstanding differences in data governance, the two countries should prioritize signing the India-U.S. executive agreement under the CLOUD Act. The agreement will ease Indian government’s access to crime-related data held in the United States and also provide faster resolution and predictability to U.S. information and communications technology manufacturers in India. 
3. Investing in the future. The new administration should increase state-to-state trade missions and work toward building relationships with leaders who define the business environment at the subnational level and may emerge as important national leaders in the future. 
4. Deepening roots. Following through on earlier announcements like creating a new consulate can restate U.S. commitment to the overall bilateral relationship and also bolster trade ties through greater presence, local knowledge, consular activities, and engagement. 

 
When the DTTI was first set up, the initial projects were modest but portrayed as “pathfinders.” The idea was to achieve small gains and get the two sides accustomed to working together. U.S.-India trade ties need similar confidence-building measures. We need to reinvent the relationship by adopting a nonconfrontational approach to trade and a renewed commitment to deeper engagement. The exercise may be frustrating, and the gains will not be immediate. But the promise for U.S. efforts lies in a growing economy teeming with opportunities.