Trump-Xi summit and India’s trade crossroads

A SETTLED world order has been set on its head by the Trump-Xi summit meeting in Busan. The reference to the meeting as the Group of Two has suddenly catapulted China into the big league, eclipsing even the advanced economies that form the Group of Seven. With this terminology, US President Donald Trump unveiled his view of power balances on the global stage.

Yet the summit has signalled only a temporary truce between the two economic superpowers. The congeniality at the summit meeting was undermined with Trump's declaration that the US would start nuclear testing, as other countries were doing. These comments are in line with Trump's well-known unpredictability. So, this could well be a short-lived honeymoon.

The immediate outcomes of the meeting are that the US and China have set aside some differences to move bilateral trade forward and reverse the paralysis of recent months. Major concessions made by the Chinese include resumption of supplies of rare earth minerals and magnets while soyabeans will once again be bought from American farms.

These are issues that had caused pain to the US economy. The non-availability of rare earths and magnets, which are needed for a wide range of electronic goods, including electric vehicles, had stalled production in these sectors. The stoppage of soyabean imports had hit US farmers who are now sitting on huge inventories that normally go to the

Chinese market.

Washington, on its part, has cut tariffs on chemicals used to make fentanyl from 20 per cent to 10 per cent, bringing the overall tariff on imports down from 57 per cent to 47 per cent. It has also agreed to freeze plans for expanding the commerce department entity list, which would have curbed companies selling technology, including semiconductor manufacturing equipment. On the other hand, the sale of Nvidia chips to China is yet to be resolved, along with many other issues.

These are significant moves aimed at defrosting US-China trade ties but many are short-term fixes. For New Delhi, however, the bonhomie exhibited at Busan cannot be viewed with any comfort. The measures have left India-US trade by the wayside. The tariffs on Chinese goods are now lower than the 50 per cent levied on Indian goods. This puts our exporters at a disadvantage.

As for the India-US trade deal, it is not yet a reality. This is despite reports hinting that it has been finalised, with approval given at the highest level on both sides. But a deal is only done when it is done. So far, it remains on the distant horizon, with Commerce Minister Piyush Goyal, in recent interviews, refusing to give any firm deadline.

The trade pact remains important even though it may not derail economic growth. It is true that exports account for about 21 per cent of this country's GDP and India is a largely domestic-oriented economy. This is the reason global rating agencies have raised their growth projections for the coming year. Even Standard and Poor's pushed up its sovereign credit rating for India after nearly two decades, disregarding the US tariff hike. Yet, expansion of trade with the US has always been the linchpin for India's efforts to expand its role globally.

The aim is to raise the current level of bilateral goods trade from $132 billion to $500 billion by 2030. India's target of $2 trillion of global trade by then has been made on the presumption that trade with the US will account for one-fourth.

The undeniable fact is that the US is the largest market in the world. It is difficult to replace despite the strenuous efforts being made to enter into a slew of trade pacts with other countries.

Apart from trade, the other issue that was notable at the Trump-Xi meeting was the absence of any mention of Russian oil imports. In contrast to the constant barrage of criticism against India over Russian oil purchases, there was no comment on China being the biggest buyer of crude from that country.

Reports say there were discussions on the issue, though Trump denied that the subject came up at all. In other words, there is relative equanimity over China's purchases while India is accused of financing the Russian war machine.

In this context, one must recall the truism that every country follows policies to suit its national interests. The current US President feels it is in his country's best interests to rebuff its closest allies which include Canada, the European Union and even India.

New Delhi's strategy so far has been to stand firm on its own self-interest as far as keeping the agricultural sector protected from US imports of grains and GMO products.

It has also doubled down on talks with a wide range of entities, from the European Union to New Zealand to Oman. As far as Russian oil is concerned, it will also continue to buy quantities from non-sanctioned entities which currently supply 40 per cent of supplies from that country.

These policies need to be deepened and strengthened and New Delhi must take a long-term view of the geo-economic climate. It would not be prudent to make any sharp pivots in policies as a result of the Trump-Xi summit.

For instance, there are voices rising in favour of rejoining the Regional Comprehensive Economic Partnership (RCEP). This may not be the best approach right now, given China's dominance of the regional trade group. A more productive move would be to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnerships (CPTPP), an 11-member trade group that does not include the US or China.

In this backdrop, India must also review its gamut of alliances. Even if the warmth between the two economic superpowers is temporary, it means the US cannot be considered a reliable and consistent ally in the long run. This aspect needs to be factored into policymaking.

At the same time, the only answer to the shifting geo-economic scenario is to deepen reforms and step up growth. Economic strength is the key to enabling this country to play a wider role in the fast-changing global arena.