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Global trade jigsaw

India is closely linked to the Sino-US trade war and must tread carefully to prevent damage to its own economy.

Global trade jigsaw

Indo-US relations have always been a roller-coaster ride despite the two being the largest democracies in the world. This has been even more pronounced with incumbent US President Donald Trump's mercurial nature.

The postponement of what has come to be known as the "2+2" dialogue, which would have brought together the Foreign and Defence Ministers of India and the United States, is no surprise. The meeting scheduled for July 6 in Washington has been postponed at the behest of the US due to other pressing global developments. The unilateral US sanctions on Iran and the consequent impact on the import of Iranian oil by India are said to be drivers of this decision.

Iran is India's third-largest oil supplier after Iraq and Saudi Arabia. Iran supplied 18.4 million tonnes of crude oil between April 2017 and January 2018. India also garnered traditionally good relations with Iran as both have several shared interests in the region. There is also another view that the postponement is because of genuine scheduling problems, with the US Secretary of State Mike Pompeo actually having to go to North Korea to salvage the Trump-Kim engagement, which seems to be on the verge of a collapse. The US has indicated to India that they will rework the dates for the "2+2" dialogue and the meeting could take place in New Delhi later this year – emphasising that the postponement should not be overread.

Be that as it may, India shares an interesting relationship with the United States. New Delhi will never blindside the US. At the same time, the US too can no longer bulldoze its way as India is now an important partner for geopolitical considerations and, more so, after the US-China trade war. India too cannot ignore the growing bilateral relationship, particularly economic, with China and the age-old friendly relationship with Iran.

Diplomatically, it is going to be a tight-rope-walk for both India and the United States and there will certainly be nudges and pushes from Washington – New Delhi will have to carefully ward it off without treading on the toes. Analysts argue that though there will be the underlying structural and institutional variables to propel bilateral relationships in a positive direction, the road ahead might be bumpy.

Though there are thorny issues and commentaries lately – the use of "deepening disconnect", India-US relationship reaching a point of inflection and so on, are unwarranted and this is likely to worsen the situation, especially as there appears to be some genuine attempt to resurrect the dialogue.

Of course, President Trump is known for his antics, the hyperventilations of the postponement of the dialogue appear to be an exercise in vanity. This is because of the fact that India has had continuous dialogues with the United States ever since the Modi government came to power and, for that matter, during the Manmohan Singh regime as well, barring a few hiccups. The bilateral dialogues are spread across all areas of cooperation, be it strategic, defence, economic, political, agricultural, scientific, education, and so on.

Certainly, under the Barrack Obama regime, the "hesitation of history" between the two countries was overcome, but Trump's South Asia strategy has certainly taken India's concerns on board, besides providing New Delhi with a greater role on the Indo-Pacific issue.

Yes, there is a problem now; the United States has asked all countries including India to reduce oil imports from Iran and bring it to zero by November 4, this year. There is enough time to deal with the issue. India has already increased its import of oil from the United States. There is also a possibility for India to negotiate an agreement to provide exceptions to New Delhi so that the Iranian oil could continue to flow, some through barter trade and some by routing payments through a third country or Euro as was done in the past when there were UN sanctions on Iran over nuclear weapons.

So far, the Trump administration has been unrelenting on Iran and one allegation is that the "2+2" dialogue was postponed because India wanted to use the opportunity to discuss a possible relaxation for New Delhi to allow oil imports from Tehran.

India, which is close to finalising a multi-billion dollar purchase of S400 surface-to-air missile system from Russia, has yet another source of worry in the bilateral relationship with the United States. The US law 'Countering America's Adversaries Through Sanctions Act' (CAATSA) has been threatened to be invoked against New Delhi if it went ahead with the purchase. India has very strong defence ties with Russia and the Indian armed forces largely depended on Russian supplies. So, India cannot afford to strain its relationship.

Indo-US trade has been growing and has crossed the $100 billion mark in 2017 and India's defence purchases too are increasing. But, as a part of the trade war, the US has recently imposed a 100 per cent tariff on steel and aluminium to particularly hurt China, Canada, Europe, and Mexico.

India, too, was affected in a small way in steel and aluminium exports to the US and imposed a retaliatory tariff on 29 US products worth $235 million. But the US-China trade war might not be a major source of worry for New Delhi as India's share in world trade is a mere 2 per cent. However, if the trade war is prolonged, then there is a possibility of a sharp decline in global trade leading to a global recession. That would not be a positive development for the Indian economy.

So, there are issues and the United States seems to be challenging the entire world. India is a small player in this nexus. Specifically for India-US relations, there are some small issues and India needs to be cautious. But they are not insurmountable at this juncture and perhaps they could be better tackled with a little patience.

(The views expressed are strictly personal)

KR Sudhaman

KR Sudhaman

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