American protectionism and Asian responses

On October 10, 2018, a senior Chinese diplomat in India underscored the need for New Delhi and Beijing to work jointly in order to counter the policy of trade protectionism being promoted by US President Donald Trump.

It would be pertinent to point out that US had imposed tariffs estimated at $200 billion in September 2018, Beijing imposed tariffs on $60 billion of US imports as a retaliatory measure, and US threatened to impose further tariffs. Interestingly, US trade deficit vis-à-vis China reached $34.1 billion for the month of September (in August 2018, it was $31 billion). Critics of Trump point to this increasing trade deficit vis-à-vis China as a reiteration of the fact that Trump’s economic policies are not working.

Ji Rong, spokesperson of the Chinese Embassy in India, said that tariffs will be detrimental for both India and China and, given the fact that both are engines of economic growth, it is important for both to work together.

The Chinese diplomat’s statement came at an interesting time. President Trump, on October 2, also referred to India as ‘tariff king’. Even though the India-US strategic relationship has witnessed a significant upswing in recent years, the US president has repeatedly referred to India imposing high tariffs on US exports to India (specifically Harley Davidson motorcycles).

Ji’s statement also came days after India signed a deal with Russia (October 5, 2018) for the purchase of five S-400 Air Defence systems during the visit of Russian President Vladimir Putin. The Chinese envoy’s statement also came days before India attended a China-led Shanghai Cooperation Organization (SCO) meeting. Significantly, India and China also began a joint training programme for Afghan diplomats on October 15, 2018 (which would last till October 26, 2018).

Trilateral cooperation between India, China, and Afghanistan was one of the main thrust areas of the Wuhan Summit between Chinese President Xi Jinping and Indian PM Narendra Modi, and this is one of the key initiatives in this direction.

There are a number of other factors which have resulted in New Delhi and Beijing seeking to reset their relationship. The first is difference between New Delhi and Washington on economic ties between the former and Iran and Russia. Washington has given mixed signals with regard to granting India exemptions from Countering America’s Adversaries Through Sanctions Act (CAATSA).

US ambiguity on providing waivers to India

While sections of the US establishment, especially Defence Secretary Jim Mattis and Secretary of State Michael Pompeo, have been fervently backing a waiver for India, there are those who oppose any sort of waiver even to India. NSA chief John Bolton has been warning US allies like India that there will be no exemption or waiver from US sanctions targeting Iran’s oil sector. On October 4th, Bolton, while briefing the press, said:

This is not the Obama administration … is my message to them [the importers]

Trump himself has not been clear on providing India a waiver. When asked about this issue, he said India would know soon about the US decision (Trump has the authority to provide a Presidential waiver to India from the deal with Russia). A State Department spokesperson also stated that the US was carefully watching the S-400 agreement with Russia, as well as India’s decision to import oil from Iran, and said that such steps were ‘not helpful’. With the US President being excessively transactionalist, it is tough to predict his final decision, and with growing differences between him and Mattis, one of the ardent advocates of waivers for India, it remains to be seen as to which camp will prevail.

US protectionism and New Delhi’s discomfort

Differences between Washington and New Delhi don’t end on the latter’s economic ties with Tehran and Moscow. India has on numerous occasions stated that while strengthening strategic ties with the US is a welcome development, it was concerned about the Trump administration’s economic policies. This was clearly evident from the Indian Foreign Minister Sushma Swaraj’s speech at the SCO Meeting (October 12, 2018) held at Dushanbe, Tajikistan, where she pitched for an open global trading order. Said Swaraj:

We have all benefited from globalisation. We must further develop our trade and investment cooperation. We support an open, stable international trade regime based on centrality of the World Trade Organization.

Even if one to look beyond Trump’s unpredictability, there is scope for synergies between New Delhi and Beijing in terms of the economic sphere and some crucial connectivity projects.

Economic Opportunities

Trade has long been skewed in favour of China, and this is a growing concern for India. Trade deficit between India and China has risen from $51.1 billion in 2016-2017 to $62.9 billion in 2017-2018 (a rise of over 20 percent).

The imposition of US tariffs has opened up opportunities for China importing certain commodities from India. This includes commodities like soyabeans and rapeseed meal. In a seminar held at the Indian embassy in Beijing in September 2018, this issue was discussed and one-on-one meetings between potential importers (China) and sellers (India) was held. India urged China to remove the ban which it had imposed on the import of rapeseed meal in 2011.

Connectivity and Afghanistan

Another area where there is immense scope for cooperation between India and China is big ticket connectivity projects. During his India visit, Uzbekistan President Shavkat Mirziyoyev invited India to participate in a rail project connecting Uzbekistan and Afghanistan.

Afghanistan has welcomed this proposal, saying that this would strengthen cooperation between China and India in Afghanistan. India-China cooperation on this project is very much in sync with the China-India Plus Model proposed by China at the BRICS Summit in July 2018.

India and China can also work jointly for capacity building in Afghanistan. New Delhi has already been involved in providing assistance to Afghanistan in institution building and disaster management, and if Beijing and New Delhi join hands this could make for a fruitful partnership. The India-China joint training program for Afghan diplomats is a significant move in this direction. India and China can also look at joint scholarships to Afghan students where they can spend part of their time in China and the remaining time in India.

For any meaningful cooperation in Afghanistan to work, both Beijing and New Delhi cannot be risk averse, and they will have to shed their hesitation. Beijing for instance has opted for a very limited ‘capacity building’, where it will work with India in Afghanistan. While Kabul had expected that both sides will invest in a significant infrastructure project, Beijing, with an eye on its ally Islamabad’s sensitivities, opted for a low profile project.

Conclusion

New Delhi should not be too predictable in its dealings with Washington DC, and has to do a fine balancing act between Beijing and Washington DC. While there are, on certain strategic issues, synergies between India and the US, on crucial economic and geopolitical issues, there are serious differences, and India’s ties with Beijing are crucial in this context. New Delhi and Beijing should seek to expand economic ties, and the latter should give more market access to Indian goods. Apart from this, both countries should work closely on connectivity projects. If both sides build trust, the sky is the limit but it will require pragmatism from both sides. Beijing should not allow the Pakistani deep state to dictate its links with India (especially in the context of cooperation in Afghanistan). New Delhi on its part should understand China’s geopolitical compulsions in South Asia, and not make any one issue a sticking point.

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