India must find a way to deal with Trump

ON July 8, 1853, Commodore Matthew Perry sailed into Tokyo Bay with two steam ships and two sloops with sails. He refused when ordered to move to Nagasaki, the port allowed for foreign ships. Likewise, he would not allow local officials to board his ships, insisting that he had a message from the US President for the Japanese Emperor. Perry’s bullying forced Japan to open up on trade, to allow US ships to refuel in Japanese ports, and make other concessions.

More importantly, it made Japan (which had only wooden sailing ships) realise the superiority of Western technology. There was confusion and disagreement over what was to be done. There were people who argued against change, some suggested throwing out all foreigners. Eventually, the forces of change won and more than a decade later, under the new and young Emperor Meiji, the country launched root-and-branch reform — of the feudal system, land ownership, the education system and the military, among other changes. The shogunate gave way to what would become known as the Meiji Restoration that began in 1867.

Within a generation, Japan became an industrial power and defeated stronger Chinese forces in battle. A decade after that, it defeated imperial Russia. Both those countries were to see their regimes collapse in the wake of the military defeats, while the change that Commodore Perry forced on Japan was to ensure it became part of the front rank of nations. There are lessons in this for India as it confronts its own Perry moment of US bullying.

This is not to defend President Trump’s actions, which remain indefensible. India is right to decry his imposition of forbidding tariffs as unfair, unjustified and indeed hypocritical. But our task is not to win the argument, it is to win the economic war. Our weaknesses have been exposed, in as much as we are not able to stand up to Trump as China has done. There is also truth in what Trump says. Cheap Russian oil has been used by refiners to earn extra profits, while the retail consumer has seen no benefit. And our tariffs have been moving in the wrong direction, exposing us to being dubbed the “tariff king”.

The broader reality is that we have long been an outlier on trade, unable or unwilling to be a part of regional Asian trading arrangements. And despite more than three decades of 6-plus per cent annual economic growth, and a near-quadrupling of per capita income, 90 per cent of our employment is still in the informal sector. That limits both productivity growth and technological progress.

While we may have found it diplomatically useful to propagate that this is now a multi-polar world, and our foreign minister has revelled in highlighting Western double standards, the hard fact is that the world has two primary poles. One of them is adversarial, if not hostile; it has pressured us militarily and squeezed us economically on critical supplies, and might do more of the same. If we now adopt a reflexively hostile stance with the US, we will box ourselves into a corner. We have to find a way to deal with Trump’s America, just as we have to find a way to use China’s manufacturing prowess for our own purposes. Turning away from both is simply not an option.

We have much --too much -- at stake with the US. It is our biggest export market for merchandise, the primary market for our services exports, and the leading source of foreign remittances. The technological competence of our engineers has encouraged dozens of large US companies to set up capability centres here, earning us dollars and providing large-scale, high-quality employment. There is also a developing strategic relationship, and an undeniable people-to-people relationship since some five million people of Indian origin live in the US. We have been the largest beneficiaries of the H1B visa programme, while US universities are the primary target of our students who wish to study abroad.

Trump would like to turn the clock back on some of this, and strands of American opinion have turned hostile to work visas and outsourcing/offshoring. Also, Trump has turned on US allies and friends more than on its adversaries (eg. attacking India, but not China, on Russian oil), creating a trust deficit that will outlast him. Still, what Manmohan Singh once remarked privately remains largely true, that the world opens up to you if you are seen as America’s friend. There is simply no country that can take the space that the US occupies. Russia is a useful partner for defence, but the talk of using BRICS and the Global South as alternatives is plainly delusional.

So where are we in relation to the ‘Restoration’ that we need? The Modi government has done well to establish economic stability, build economic infrastructure, radically improve the provision of basic goods and services (tap water, cooking gas, toilets, housing, etc), and create a unique digital infrastructure, but it has not done as well in other areas.

The 1991 reforms were half-done, and the so-called second-generation reforms have been fitful and inadequate. We have to ask, for instance, why China has moved from being a large-scale importer of fertiliser to becoming an exporter, while we remain a large importer which now buys from China. Have our confused pricing and subsidy policies played a role? Similarly, why does our agriculture need to function behind a 40 per cent tariff wall? Is it because of our low productivity, which has not been addressed?

Because of such failures we are defensive on trade, and our tariffs have been raised instead of lowered. Progress with the new education policy announced five years ago has been very patchy. Our attempts to deliver manufacturing prowess have little to show beyond mobile phone assembly, and our employment situation remains dire, with more people having to fall back on agriculture or self-employment (both being disguised unemployment). Our defence sector has been under-funded.

On the business front, too much power is concentrated in a handful of conglomerates which, unlike the “national champions” of Japan and South Korea, are inward-looking and not leading a national outreach. Finally, there is a message in our net foreign direct investment being reduced to near-zero.

If Mr Trump can bully us, it is because we can be bullied. If the US sees us less than earlier as a counterpoise to China, it is because we have under-performed in ways that go beyond the rate of economic growth in which we rightly take pride. In the real world, removed from TV war rooms, we can’t get away from the costs that Mr Trump will impose on us. But we have to make rational choices, not be ruled by emotion. And we have the resilience to absorb the impact and build from there. That is the task that we should focus on even as we figure out the best way to deal with a global bully. While the parallels with mid-19th century Japan should not be overdrawn, this is our Perry moment if we want to make it one.

TN Ninan is the former Editor of  Business Standard.