Trump dying to announce victory in trade talks; India should not cave in: Swaminathan Aiyar

Time of India

11 hours ago

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, Consulting Editor,, argues that India's decision to forgo the Google tax was a flawed strategy, citing examples from Japan and Europe. He believes India should leverage its need for oil and gas to reduce its trade deficit with the USA, a unique position compared to countries like Vietnam.: It is not just Vietnam, he is anxious to come and announce a number of deals before July 9th. In fact, at one point of time, he said, he was going to announce 90 deals, which I very much doubt given the very few days left and the way Japan and the European Union have dug their heels in and said they are not ready. But he is desperately keen to announce a victory. Just like in the Indo-Pak conflict that we had recently. He is dying to announce that I have brought about peace and I want a Nobel Prize.So, he is dying to announce a number of victories. He has done it with Vietnam. He is close to having an interim deal if not a full deal with India. He wants to be able to announce a number of victories on trade by July 9th. Let us see on what terms those are being made. What is clear at this point is that neither Japan nor the European Union says that they are so afraid of the US and are going to give in. They are saying that they are going to continue and have very serious problems with US proposals, we are not going to keel under.So, those two biggest trading partners are not going to cave under. And if they continue, then in some sense it is a sign to India and others not to cave in. I have long said that one thing I could not understand is that we gave up the Google tax getting nothing in return, even before all this started. People said it is like putting sugar inside the other guy's mouth so that they will be in a more happy mood. I am sorry that is a stupid strategy as the Japanese have shown, as the Europeans have shown.I really think we should be tough and hold out. Our strength is that because we are short of oil and gas, we can be among the very few countries that are going to shrink their trade deficit with the USA. For most other countries including Vietnam, it is very difficult for the trade deficit to come down. But India can offer that because of our need for oil and gas. Once you put that in, even in the interim, he can claim partial victory.Vietnam was certainly open to saying there will be zero duty on US goods. The plain and simple fact is that they import very little from the USA. And if that comes in on zero duty, I mean they are perfectly happy to import a little more from the USA. Trump's problem is that the USA is uncompetitive on most items. So, if they say that import duty on cars comes down to zero, how many American companies are going to be competitive compared with the Japanese, the Koreans, and even with the Europeans. Vietnam was willing even earlier to say okay we are willing to do a zero tariff.One of the big things is Trump says that all the Chinese goods are coming through you and also the Chinese companies are investing in you and they claim that this is a Vietnamese product and it is not because the value added is so little. That is some of the most difficult part. Apple and various other people have investments in Vietnam and if you say that I will put a very high duty on you because you are shipping parts from China, then it would make things very difficult. There is a Chinese company called Jinko Solar which made a huge investment in putting up solar panels and suddenly Americans are saying the value added is not enough and are threatening with a very high tariff. So, let us see how that works out.The Vietnamese recognise that the United States is an important market. They have no problem opening their market and they will do what they can. I would simply say that in the history of all this, cheating always succeeds.India has not allowed Chinese companies to invest in India. So, the problem that the Chinese will be shifted to India is not an issue. What has been brought up as an issue is Apple because Apple is importing components massively from China and in India all that we are doing is assembling. There is no serious manufacturing of components. So, he is saying that India just adds 6% in value and moves it on. Why should I treat this as an Indian product, why should I not treat this as a Chinese product? So, I think that is the difficult area we have.But as I said, India's advantage is that we can import oil and gas from the US and lower the trade deficit. China could also do that if it gives up Russia, but China will not give up Russia. So, I would say, India can massively increase its imports of oil and gas and therefore be in a better negotiating position. Other countries will find it very difficult because I do not think they are in a position to massively increase imports of energy. They will not be able to have a massive increase in exports of almonds, pistachio, and cashew which the USA wants them to do. They all have sensitive agricultural sectors. Nobody wants to open up their agricultural sectors. There is also the problem that America has genetically modified crops in the case of soybean and in the case of maize and in the case of wheat. If we allow this in, then we will not be allowed to export to Europe because Europe won't take genetically modified crops.No, there is going to be action because Mr Trump wants to announce victories. If he has said, I am going to do 90 deals, imagine how many deals he will attempt to do in the next week, a very large number. And he will want to use the numbers to create an impression of a major victory. Without doubt, he is a stage actor who will attempt to show a very large number of victories. Even where there are partial agreements, as may be the case with India, he will play that up. If with Vietnam, there is zero import duty, he will play that up, even though Vietnam's imports are so small that it will not make a significant difference. He is an excellent actor. He is a performer on TV. He is a performer on the stage.But Trump is not going to find it easy to get everybody to agree to his terms, even though he is trying. Above all, he is treating the current account deficit of the United States of America as being a consequence of unfair trading by others. In terms of economics, that is dead wrong. A current account deficit represents a shortage of money to finance your own investment. Therefore, you have to get the money from outside. And the mirror image of that is a current account deficit. So, the plain and simple fact is that the Americans are spending too much compared with their own savings and because of that they run a trade deficit.It is not going to be put right by these so-called deals. In a year or two from now, of course, you may say that the MAGA crowd, Trump supporters, do not understand why a current account deficit should be equal to a savings investment gap. Right? He may get away with fooling a large number of them. But the fact is it is not going to change. In fact, with this new budget package, the debt is going to increase even more, which means that the trade deficit overall may get bigger and not smaller. Let us see how Mr Trump explains that to his supporters in the next two years.On oil he is keen and ,Modi says absolutely. So, the fact that the two of them agree on such a large area has made the negotiation relatively easy. As far as agriculture is concerned, Mr Trump knows a very large number of agricultural states in the United States. They are with him, they are his backers and they are all saying what is going to happen to us? If you start putting up tariff barriers and there are retaliations, the retaliations will come on agriculture. So, what you are doing is you are cutting our throat.So, Mr Trump is very keen on showing victories on agriculture to mollify the farm belt in the United States which constitutes a solid backing for him. He is going to push that. Others will push back, as Japan has pushed back so conclusively. In India, the Jagaran Manch is dead against agricultural imports. You saw the impact of the farmers' protest against the reforms that were proposed a couple of years ago.In these circumstances, it is very difficult to see India giving way in agriculture. Maybe we can import some more pistachios and cashews. more apples and pineapples. do. On the serious areas of importing more genetically modified corn, maize and wheat, I just do not see India giving way at this stage and that may hold up a final agreement. Finally, we are not close to any kind of deal.