Politics & Policy

Strengthen the U.S.–India Relationship

Indian Prime Minister Narendra Modi with President Trump at the White House, June 2017. (Reuters photo: Kevin Lamarque)
The two nations have mutual economic and military interests that are longstanding and growing.

As he begins his second year in office, President Trump has an opportunity both to expand the American economy and to advance relations with a vital U.S. global partner. The Bush and the Obama administrations prioritized America’s outreach to India and negotiated key agreements in trade and nuclear and military cooperation. Now, the challenge is to build on this important bipartisan achievement to create an even closer U.S.–India relationship.

Closer economic ties. Trade has transformed U.S.–India relations. “Bilateral trade has more than doubled in the last decade from $45 billion in 2006 to more than $114 billion in 2016,” as the State Department’s Alice Wells recently told Congress. In 2014, President Obama and Prime Minister Narendra Modi pledged to increase U.S.–India trade fivefold, and in the past two years, U.S. foreign direct investment in India has grown 500 percent. However, U.S.–India trade remains far short of its full potential.

The president promised in his State of the Union address Tuesday that “we will work to fix bad trade deals and negotiate new ones.” If he is serious, the president should negotiate a bilateral investment treaty to further promote U.S.–India trade. For comparison: Joshua Meltzer and Harsha Singh of the Brookings Institution note that trade between America and South Korea is twice as large as that between America and India, even though South Korea’s economy is 40 percent smaller than India’s.

Another vital step for the administration is to support India’s effort to join the Asia-Pacific Economic Cooperation forum (APEC). India has sought to join APEC for more than 20 years, and in 2010 the organization lifted a moratorium on new members. Despite this, Washington has not seized the opportunity to support New Delhi. “India in APEC would help offset the now overwhelming influence of the Chinese economy,” writes Alyssa Ayres of the Council on Foreign Relations, “while also embedding India in a forum that would nudge it toward further economic reform.”

For his part, Prime Minister Modi took office in 2014 promising ambitious economic reforms. He quickly unveiled his “Make in India” initiative to boost the country’s manufacturing sector from 17 percent of the country’s GDP to 25 percent over the next decade. Recently, India introduced a goods and services tax to replacing existing state and local levies in favor of a common national tax. Overall, however, Modi’s policies have fallen fall short of his promises. As the 2019 Indian election approaches, he should not shy away from pursuing dramatic structural reforms. Derek Scissors of the American Enterprise Institute recommends allowing Indian manufacturers to hire more people, privatizing banks, improving market access, and permitting full private ownership of land.

Indeed, while India is expected to become the world’s fifth-largest economy this year, there is still much New Delhi can do to promote economic growth. As Wells noted, India still has “significant tariff and non-tariff barriers, subsidies, localization policies, restrictions on investment, and intellectual property concerns that limit market access and impede U.S. exporters and businesses from entering the Indian market.” The Commerce Department reports that India has levied an array of tariffs on U.S. goods such as medical equipment, automobiles and motorcycles, rubber, alcoholic beverages, and textiles. What makes this particularly frustrating is that “India has considerable flexibility to change tariff rates at any time,” leaving U.S. exporters with tremendous uncertainty. If U.S.–India trade is to meet its full potential, then the relationship needs to be rooted in policies that are free and fair.

Increasing military cooperation. Just as trade is bringing the United States and India together economically, China’s military actions are bringing them together strategically. Sales of U.S. military equipment to India have gone from zero to $15 billion in ten years. Already, the United States sells India transport and maritime patrol aircraft, anti-ship missiles, and helicopters. But, with the declaration of India as a “major defense partner” in 2016, the administration can offer even more systems for sale, such as drone and fighter aircraft and aircraft-carrier technologies.

Just as trade is bringing the United States and India together economically, China’s military actions are bringing them together strategically.

Last fall, Secretary of State Rex Tillerson detailed the administration’s “vision of a free and open Indo-Pacific, supported and protected by two strong pillars of democracy — the United States and India.” But to achieve that aim, Washington and New Delhi must further enhance their defense cooperation. The end goal of this cooperation, says James Carafano of the Heritage Foundation, is to craft a unique strategic relationship, “one that delivers the benefits of allied status without the formal architecture that goes with it.”

Finally, as China’s military power grows, U.S. allies in the Pacific are increasing their security cooperation with the United States and each other. The Trump administration should help further incorporate India into this emerging quadrilateral relationship between themselves, Japan, and Australia. Washington, Ashley Tellis of the Carnegie Endowment says, should “actively encourage consultations, exercises, liaison relationships, and even defense procurement among any combination of partners within this ‘Quad.’” By working together to defend their common interests, the Quad can advance a shared vision of an Indo-Pacific that is free from coercion and intimidation.

Conclusion. In 2000, Indian prime minister Atal Bihari Vajpayee declared that his country and the United States are “natural allies.” But, as President Trump said when unveiling his national-security strategy: “Success is not a forgone conclusion. It must be earned.” Trump and Modi should take the difficult steps now to fulfill their predecessors’ visions of a close U.S.–Indian economic and military relationship.

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