India & IPEF: Joe Biden's Attempt to Woo PM Modi With Trade ‘Bargains’?

PM Narendra Modi with US President Joe Biden.

(Photo: Twitter/@BJP4Punjab)

The US government under President Joe Biden has on more than one occasion referred to the US relationship with India as ‘most important’. Recently, Biden, speaking to Prime Minister Narendra Modi in the backdrop of the Quad summit, reiterated that message. Based on his launch of the much-awaited Indo-Pacific Economic Framework (IPEF), the Biden administration is starting to walk the talk. The IPEF, which covers the US and 12 partner nations, is tailored to meet the demands of India, the bargain hunter in international trade.

India is not in any trade bloc in the Indo-Pacific region. It is not party to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) and it pulled out of the Regional Comprehensive Economic Partnership (RCEP) at the last moment after eight years of negotiations, frustrating the trade bloc’s participants. Though similarly averse to multilateral trading arrangements, the US under Biden has re-entered the Indo-Pacific trade architecture through the IPEF, after the Trump administration pulled out of the TPP in 2018.

• The IPEF is tailored to meet the demands of India, the bargain hunter in international trade. Joe Biden has on more than one occasion referred to the US relationship with India as ‘most important’.

• India’s aversion to trade deals that provide unfettered access to its market and fears over Chinese goods entering the Indian market through multilateral trade deals are not unfounded.

• Modi administration’s ‘Aatmanirbhar’ and ‘Make in India’ initiatives have room for American enterprises to play an active role through the IPEF.

• Once a champion of free trade, the US has offered the countries in the region nothing more than a framework – not a trade bloc, not an agreement, but a framework.

Why India's Fears Can't Be Dismissed

Once a champion of free trade, the US has offered the countries in the region nothing more than a framework – not a trade bloc, not an agreement, but a framework. This may not fill the vacuum left by the United States’ withdrawal from the TPP. However, this will be just enough to get the buy-in from India – again, the most important country for the US, according to Biden. Speculation among Indo-Pacific analysts, that the Quad grouping was formed to bring India into the Western fold, gains more credence with the launch of the IPEF.

India’s aversion to trade deals that provide unfettered access to its market and fears over Chinese goods entering the Indian market through multilateral trade deals are not unfounded.

Multilateral trade deals, such as the RCEP, could have increased India’s trade deficit with ASEAN, which is already quite high, and further ballooned a trade deficit with China, which is already rising at an alarming rate since the COVID-19 pandemic.

Concerns over trade deficits, China’s dumping practices and lack of country-of-origin regulations in multilateral trade deals have given India no option but to stick to bilateral arrangements.

License Raj Tendencies Visible Again?

Nevertheless, economists who raise concerns that India is going back to pre-1991 times of import substitution, trade protectionism and a form of license raj, are not completely to be discounted either. The Modi administration’s ‘Aatmanirbhar Bharat’ programme and ‘Make in India’ reek of the license raj-era and a persistent hesitance among Indian administrations to truly open up the economy to free trade.

Former American President Donald Trump was a big proponent of bilateral trade deals – at least the ones his administration enacted – over multilateral ones. As a matter of fact, he was averse to most multilateral agreements that the US was a signatory to, such as the Paris Climate Accords and the World Health Organization, not to mention the TPP. Trump’s recalibration of America’s trade policy in the region has energised other sceptics of multilateral trade in the world, such as India, in finding alternative mechanisms to gain through bilateral deals and economic frameworks.

The IPEF is a populist work of art and a free trader’s gaucherie. Besides the $50 billion in commitment to infrastructure, the framework has not provided details on how it will achieve its stated goals.

However, the difference between the trade protectionism of the 20th century and the 21st is that the countries are open to working together on trade – through frameworks and supply-chain diversification projects, just not through multilateral free trade agreements.

Why India Shouldn't Waste Time Anymore

IPEF delivers on supply chain resiliency, environment, labour laws and corruption. India can constructively contribute to the former two than to the latter two. While there could be differences in the use of renewable and non-renewable sources of energy, the US-India partnership has certainly grown in the sphere of energy trade to address those differences. The Modi government is counting on the Biden administration’s supply-chain resiliency initiatives to take note of his administration’s business-friendly reforms to move supply chains into India.

His administration’s ‘Aatmanirbhar’ and ‘Make in India’ initiatives have room for American enterprises to play an active role through the IPEF. The administration needs to jump on the bandwagon, or other nations that are party to the IPEF, such as Malaysia or Vietnam, could steal India’s one last opportunity to be part of the Asian trade architecture, as they have with chip manufacturing and other electronics manufacturing industries. One nation’s loss could become another’s gain.

Both on a bilateral level and through multilateral forums such as Quad, US-India relations continue to grow. Recently, the US became India’s largest trading partner, surpassing China.

In the next few years, the US courting of India will only get more aggressive and persuasive. It will become evident in the near future whether populist trade proposals have a measurable positive impact on trade – such as a trade-averse India transforming into a trading nation and the US pulling off a re-entry into the Asian trade architecture – even without handing over treats like market access.

(Akhil Ramesh is a Research Fellow at Pacific Forum. He can be reached at @akhil_oldsoul on Twitter. Robert York is Director for Regional Affairs at Pacific Forum. He can be reached at @Rob_York_79 on Twitter. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)