Strengthening Indo-US Relations: What It Means for India and Global Trade

The success of Howdy Modi event in Dallas and personal bonhomie shown by Trump and Modi indicate changing equations in Asia and the willingness of the US to join hands with India to check the growing menace of China in international trade and military might. The unprecedented gesture by a US president to join Modi at Houston is not only a recognition of Narendra Modi as a global leader, but it is also a testimony of the economic and political influence of the Indian American community in the US.

China, which is in a trade war with the US, might feel the heat, as many US companies, such as Apple and others, have expressed their willingness to set up units in India. The US-China trade war might prove a win-win situation for India both in terms of military power and business.

It is a widely acknowledged fact that India remains the only power that can balance China’s economic and military power in the western part of the Indo-Pacific region. For the US, India is one of the fastest-growing economies, and the world’s largest democracy is ideologically similar and strategically central to its interests in the Indo-Pacific region. India serves as a counterbalance against a rising China.

India is fully aware of and enjoying its status of being a valuable strategic “swing state” for both the US and China. The US and India maintain a “broad-based strategic partnership” based on a convergence of vital interests. While the US publicly embraces India as a critical partner in its Indo-Pacific strategy against China, Beijing too is aware that a breakdown in the bilateral relationship with India would drive Delhi closer to the US, thereby hampering President Xi Jinping’s vision of China as the world’s leading power by 2049.

Windfall Gains of the US-China Trade War for India

Countries such as Japan, Malaysia, Singapore, and Mexico that are more dependent on trade would suffer due to the trade war. But India stands to gain from it.

As per a United Nations Conference on Trade and Development ( UNCTAD) report, India’s exports are likely to increase by $11 billion in the long term due to the trade war. The increase will be in items that are currently being imported from China, where the US is not on par with India. Similarly, Indian exports to China will also increase in goods that China today imports from the US.

Further, there could be increased investments from the US and Chinese companies in India, as China and the US seek to separate themselves. Already some Chinese companies have evinced interest to invest in India, especially in the area of telecommunications. Chinese mobile brands like Oppo, Xiaomi, Vivo, Lenovo, and Oneplus has a huge market in India. The world’s largest telecommunication equipment supplier, the Chinese firm Huawei, which is in the middle of the trade war, has plans to invest $100 million in India over three years starting 2020.

Lei Jun, Founder, Xiaomi, says, “It is getting difficult for Chinese companies to invest in the US due to the tussle between the US and China. We are interested in investing in India, and it will be good for this country”. With a tariff on Apple iPhone to take effect on December 15, 2019, Apple, Foxconn, and Wistron Corp. might shift their business out of trade war-hit China.

Mahindra Group chairman Anand Mahindra feels that even if a full-blown trade war is averted, India would still be a beneficiary. He says, “a Chinese firm with large exports to the US would be wise and invest in a subsidiary in India. Direct exports would become indirect. A sign of Chinese investment in India may be imminent.”

Under Prime Minister Modi, India-US bilateral trade of goods and services already crossed US$126.2 billion in 2017. India Inc feels that the business will give ample opportunities to achieve $500 billion trade by widening the trade basket and resolving impediments.

In a battle between two giants, India appears to be in the best position to reap the gain. As manufacturers seek alternative origination destinations, India could benefit from diversion in investment flows.