Indo-US bilateral trade talks: India caught between the US and China

I want to flag two excellent reports on the state of play in the ongoing Indo-US trade negotiations. One report is in the Economist and it's about India having to balance pressures from the US and China.

The US's key objective is to secure greater access to the Indian market. It has a second objective that is part of a larger global plan, namely, to deny China greater access to the Indian market. It certainly doesn't want to China to make India a manufacturing base from which to export to the US. It would like India's trade relationship with China to lessen. 

Keeping the Chinese out of manufacturing in India can be done and is being done. India runs a large trade deficit with China. A year ago, the thinking in some policy making circles was that one way to reduce the trade deficit would be to let Chinese firms into India so that they could make in India for the Indian market. Some suggested Chinese firms could be let into non-sensitive or non-strategic sectors- we could keep them out of defence and telecommunications, for instance, but they could come into renewable energy. But the suggestion hasn't travelled far. India's security experts are wary of dependence on Chinese firms entering into Indian market and with a large complement of Chinese nationals. 

Lessening the trade relationship with China, is harder to accomplish, as the Economist notes:

But the idea of expanding American trade with India, while also isolating China, runs into a giant problem. Many Indian exports to America (and elsewhere) depend on Chinese components. The pharmaceutical sector, one of the biggest exporters to America, relies on China for 70% of precursor chemicals. The smartphone industry, a rare success story in Mr Modi’s scheme to attract foreign manufacturers with generous subsidies, needs China too. Phones are assembled largely from imported components, including many from China......I don’t see any alternative to China emerging in at least a decade,” says Mr (Ajay) Srivastava (a trade expert). 

In short, India can find ways to increase America's access to the Indian market but will not be able to meet the American demand to curtail dependence on China.

The second report is from the FT and it's about American pressure in another area- giving America's e-commerce giants, Amazon and Walmart (which owns Flipkart), a bigger piece of the Indian market. The two giants are allowed to sell other producers' goods but not their own, unlike India's own e-commerce players. They are mounting pressure on the Trump administration to get India to change its rules for them. That would happen at the expense of players, such as Reliance, a group that doesn't lack political clout.

If the idea is simply to reduce India's trade surplus with the US, that can be arranged. India can buy more oil and defence equipment from the US and these two items alone could help reduce the trade surplus. But the US wants a great deal more- it wants more access for a range of American goods and it wants China to be denied access. Indian trade negotiators have their work cut out for them.