Drawing a truce

After a year-long embroilment in trade tiff, embracing tariff war and export subsidies, Modi-Trump summit, on the sideline of G-20 summit, became a game changer. It set up a tone for readjustment rather than retaliation. Till now, USA was a staunch accuser of India's high tariff, calling it Tariff King and alleged India's export subsidies as WTO non-compliant. Trump's bully abrogated GSP (Generalised Preference Scheme) benefits, alleging India as one of the causes for USA trade deficit. India enjoys a trade surplus with the USA.

Last year, against USA's imposition of high tariff on steel and aluminium, India stoke a voice of retaliation by proposing high tariffs on 28 items of imports from the USA with a notification on June 2, 2018. However, the actual implementation did not take place and was deferred several times over a period of one year hoping that resolve would be made through negotiations. The trade row heightened further with the abrogation of GSP. India responded with retaliation by imposing a high tariff on 28 items of imports from the USA on June 15, 2019.

The jumble of actions for retaliation and counteractions raised the ante of a grim situation between the two countries. So much so that Trump jeered at India for imposing high tariff and tweeted the hike as "unacceptable" two days before the summit.

Nevertheless, his animosity quelled when both leaders met for a discussion on the sideline of G-20 summit and called for a temporary truce. Both agreed for readjustment of tariffs at the official level through dialogue. Trump refrained from pressing for the withdrawal of high tariff.

This demonstrated Trump's toned-down anger, which might have been influenced by Modi's persuasive ventilation of India's standpoint.To this end, comments by Ivanka Trump, White House Adviser and daughter of Trump, carried weight. She exulted the dialogue "productive", even though she believed "India a critical ally".

On the case of banning Huawei 5G technology, India remained non-committed to toe the line of USA. India pursued the USA for the need of 5G Technology for the country. According to Foreign Secretary Vijay Ghokle, Modi might have convinced Trump that 5G Technology is need of the hour. This sent a message that India resisted Trump's pressure tactic.

On sanction against oil purchase from Iran, Modi seemed to have asserted for stability in the Gulf region, on the behest of its energy concern. India largely depends on imported crude oil (roughly 90 per cent) and Iran is a big supplier. It accounts for 10 per cent of the total crude oil import. Besides, Chahbahar Port engages Iran as a strategic partner for India's trans-shipment of goods to Central Asia. It helped the country by-passing troubled trodden Pakistan and Afghanistan. According to Vijay Ghokle, Trump told Modi that the USA was trying its best to ensure stability in the region. This re-affirms Trump's vying Modi's friendship by toeing on India's request for stability in the region.

Another surprise from the summit bilateral was that Trump did not raise the issue on purchase of S-400 from Russia (anti-aircraft missiles), even though concerns loomed large after India rejected US Secretary of State Mike Pompeo' veiled threat during the meeting with Indian Foreign Minister S Jaishankar.

In the post-summit, both Modi and Trump were exuberant over the success of talks. Modi tweeted, "we discussed ways to leverage the power of technology, improve defence and security ties as well as issues relating to trade. India stands committed to further deepen economic and cultural relation with USA". An impression unleashed by India's Foreign Secretary Vijay Ghokle was that the bullying tactic by Trump did not work on Modi. Echoing similar impression, Trump said, "we have become great friends and our countries have never been closer. I can say with surety. We will work together in many ways including military".

Therefore, as against Trump's bullish tweet on India's hike in tariff before the meet, talks in the summit set a tone for resolving issues through dialogues instead of retaliation, demonstrating that dialogue turned out to be a game changer for the US-India relation.

White House tweeted, "Meeting just concluded. President @realDonald Trump and Prime Minister @Narendra Modi of India shared ideas to reduce America's trade deficit, enhance defence cooperation and safeguard peace and stability throughout Indian Ocean and Pacific Region".

In global power game, India is far behind of USA. It is more significant to India economically in trade and investment and vice–versa. The USA is the biggest export destination for India and a major foreign investor. USA is the major turf for employment generation since the USA is the biggest importer of labour-intensive products from India. To this end, any retaliation by India warrants a major dent to its exports and economy.

From the point of national spirit, retaliation is a good challenge. But, the national spirit cannot play a pivotal role in cross-border trade, when the challenges are not on equal foot in terms of trade muscles.

USA accounts for 16 per cent of India's merchandise exports and 50 per cent of IT software and BPO service exports. In contrast, India accounts for merely 2 per cent of USA exports. Despite this, USA incurred a trade deficit with India.

Trade deficit provoked Trump to accuse countries of indulging in unfair trade practices. He alleged that while the exporting nations treated the USA unfairly and reaped the benefits of the open and large American market, these countries were reluctant to reciprocate by opening their own market on equal terms.

India will dig its own grave if it indulges in retaliation. Exports of readymade garments and gems and jewellery (particularly diamond and precious stones) are the cases in point. Both these items account for one-sixth of India's total exports. And, the USA is the biggest importer of these two items from India. Further, a big labour force is employed in these two export-oriented industries. To this end, the USA's counter-retaliation will send industries in a tailspin, causing huge export loss and unemployment.

Given the unbalanced power of two countries, Trump's vying Modi's heart to resolve the trade conflicts through dialogue should be treated a big success of the G-20 summit.

(The views expressed are strictly personal)