Via Petr Kratochvil, Keith Roper, Christoph Anton Mitterer, & Asitjain
With Trump holding a hard and firm stand about radically changing the trade policies between the US and China, his administration had to look for an alternative market for their exports. The alternative of choice needed to be of equal measure in terms of consumption capacity for US exports; as determined by the country’s population. In this case, India appears to be the new frontier for the US exports if the details in the recent report from the United States Trade Representative are anything to go by.
The US Trade Representative report explained that the growth in the economy of India, and the ongoing tax reforms could support more US exports to the country in the future. The report released in March 2017 outlined the US trade policy with other countries of the world this year; as well as reviewed US performance in international trade for the year 2016. Part of the huge report stated that “India’s economic growth and development could support significantly more US exports in the future. India’s reform of its goods and services tax could help create a common internal market that significantly lowers transaction costs.” It further added that “While these reforms are encouraging, there has also been a general trend of tariff increases in India, which reflects an active pursuit of import substitution policies.”
When giving their market reviews on global trends, analysts at Lionexo stated that with India having a population of about 1.3 billion people, which is almost the same number as China; the country provided a fertile export ground for the US to venture into, as they lose their grip on China. In 2015, the US exported goods worth USD 116 billion compared to imports from the same country worth USD 482 billion; hence making the US a net importer with a trade deficit with China of about USD 366 billion. On the other hand, the US exported goods worth USD 40 billion to India in 2015, while imports from the same country were worth about USD 69 billion. With a smaller trade deficit with India of about USD 29 billion, the US sees a bigger growth opportunity in India, where it can bridge the deficit much faster and be a net exporter to the growing economy in India.
The context in India may be a different one though compared to China. As of 2013, the income per capita for India as measured using the Gross National Income, stood at about USD 5,350; while that of China towered at more than double that of India at about USD 11,850. With this income disparity, the purchasing power of consumers in India is limited to about half that of China. This then limits the capacity of Indian consumers to import enough goods and services from the US; to compensate for the export market that might be lost by the US in China.
Besides the differences in income levels, there are other factors such as government systems in India and China which also affect how business is done in each of the countries; and also affect their policies towards international trade. Of higher priority to the US is the issue of intellectual property rights and how they can protect the US business people from suffering from theft of their IP rights. On this particular issue, the US Trade Representative report showed some optimism in India as compared to China, by stating that “India’s new National Intellectual Property Rights policy could protect US innovations.”
As a way forward, the US Trade Representative report said that the USTR would take up the initiative of following up with the agreements that were reached in the US-India Trade Policy Forum (TPF), in October 2016. Some of the action points will include holding of online meetings through video conferencing and having in-person meetings on pertinent issues including IP rights, promoting investments in manufacturing, agriculture and trade in goods and services. The report further noted that this form of regularized engagement “will provide an opportunity to achieve meaningful results on a wide range of trade and investment issues, and allow the US and India to partner on issues of mutual interest in advance of the 2017 TPF.”
As the US political temperatures cool and we return to serious business, it will be very interesting to follow through the new geopolitical alignments that will ensue. Whether India is the best alternative for the US exports is up for debate; but as of now the statistics show that it will take a lot more growth in India to catch up with China’s consumption power.
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