This article was published in Business Standard on December 4, 2017
Political foes can have strong economic ties. The strength or weakness of trade ties between countries does not hinge on politico- intellectual affinity clubs. Indeed, authoritarian China, the largest trading partner of democratic America and India, is simultaneously the main security threat to both in Asia. Even during the Obama presidency these trends were visible in US-China, US-India and India-China ties. Donald Trump’s recent visit to China confirmed the trends – as have Indo-US ties since he became president of the US.
Trade and investment are Trump’s methods of choice to place “America first”, which is about protecting American jobs. During his election campaign he attacked both China and India for stealing American jobs. But on his recent trip to Beijing he did a U-turn. Blaming his presidential predecessors for America’s trade deficit with China, he gave China great credit for taking advantage of another country for the benefit of its citizens.
Before leaving for Beijing Trump hailed authoritarian President Xi Jin Ping’s ‘great political victory’ at the Chinese Communist Party Congress in October. In Beijing he said, ‘Your ancient values bring past and future together into the present. So beautiful.’ (Are Modi and his Hindutva-propagating RSS/BJP aware that he is not the only Asian leader, and India not only Asian country, to be praised by Trump?)
New Delhi needs a rethink. The Trump administration’s use of the term “Indo-Pacific” – rather than Asia-Pacific – does not mean that India has become the centre stage of America’s Asian strategy. Geography alone highlights India’s position as the western pillar of the Indo-Pacific rather than its cornerstone. And on the military plane, the sale of the F-16 to India does not imply America’s recognition of India as its top strategic partner in Asia. Lockheed will not transfer its latest technology to India because that is against its own interest and also America’s interest.
China’s aggrandizing tendencies are the biggest threat to America’s primacy in Asia, to the territorial integrity of India and several other neighbouring countries , and to Asia’s maritime security. Washington and New Delhi share an interest in freedom of navigation in Asia’s international waters. But perhaps hoping to enlist China’s help with North Korea, it was only in the last speech of his Asian tour that Trump voiced concern about China’s building military outposts in the South China Sea. Significantly, he went ahead with $250 billion worth of trade deals during his Chinese visit, even if many of the agreements were nonbinding memorandums of understanding (rather than legal contracts) that could easily be reneged on. The biggest deal saw an $83.7 billion investment by the China Energy Investment Corp, to take place over a 20-year period, in chemical manufacturing projects and shale gas developments in West Virginia, where Trump won nearly 68 per cent of the vote in last year’s US presidential election.
Meanwhile, the long-standing border dispute between India and China – reflected most recently in the standoff over Doklam – does not stop China from being Indian’s largest trading partner. Trade in the first eight months of 2017 increased by 18.34% year-on-year to US$ 55.11 billion.
Sino-Indian political rivalry did not prevent Modi’s disastrous demonetisation from benefiting the Chinese economy by ruining small Indian businesses. Former Prime Minister Manmohan Singh has pointed out that the value of India’s imports from China stood at Rs 1. 96 lakh crore in the first half of FY 2016-17. But in 2017-18, they rose to Rs 2.41 lakh crore.
At another level, it is noteworthy that India imports China-made figurines of Hindu gods and goddesses because of China’s more efficient production methods and factories. Those are essential for any country’s advancement. Will Modi’s big reforms – demonetisation, the GST, and his attempts to make it compulsory for all Indians to have the Aadhaar card –achieve these prerequisites for progress?
China simply offers the US more than India. Two-way trade between China and the US grew from $33 billion in 1992 to over $648 billion in goods and services in 2016. India-US bilateral trade in goods and services increased from $104 billion in 2014 to $114 billion in 2016. For American goods, China was the third largest export market; India the 18th largest, in 2016.
Modi’s “Make in India” policy signifies that India has yet to become a global economic power. In fact, Indian exports and growth are falling. That is bad news, because geopolitical weight and economic strength and are intertwined. That in turn explains why India’s red tape, infrastructure, taxation, governance, labour reforms, and skill development are major issues in India’s economic policies – and in Indo-US relations.
Boasting the world’s second largest economy, China wants recognition as a great power. Washington is unlikely to oblige.
But the US will not help India to become a world power. No country can make another a great power. China’s global reach stems from its economic prowess –not on dependence on another, more powerful country.
For India, as for most Asian countries, the US remains the necessary counter to China’s expansionism. Do the benefits of economic collaboration outweigh Trump’s concern for the insecurity fomented by Beijing’s territorial ambitions? Asia must wait and see.
In business terms both India and China “pivot” to the US, even as the Sino-American and Sino-Indian political rivalries prevail. These paradoxical but parallel trends will last for some considerable time to come.