Indo-US ties amid neo-mercantilism
In less than 10 days, Prime Minister Narendra Modi will be visiting the US. The US Secretary of State, Antony Blinken, anticipated that the “visit will celebrate the deep partnership” between the two countries. As for its content, shorn of the trappings of a state visit, the US focus is on arms export. Hopes have been raised that beyond military exercises on ‘beaches, landing grounds, in fields, in streets and on the hills,’ so as to strengthen defence preparedness to wage war against some indeterminate enemy in an inchoate future, Washington may pay heed to long-standing Indian entreaties to dip its toes into co-production of weapons in India and allowing for transfer of technology.
Washington may pay heed to long-standing Indian entreaties to dip its toes into co-production of weapons in India.
How far nascent hopes will turn into reality remains uncertain but the ‘mood-setting’ visit by US Defence Secretary Lloyd Austin to New Delhi offers a clue. Austin may not be much of a combat veteran, but he is immensely experienced in the working of the military-industrial complex in the US, having served in the board of directors of arms manufacturing companies. ‘Have money, will travel,’ to tweak the catchy title of the Richard Boone television series of yesteryear, would have been Austin’s core message to the Indian government, padded up with the geopolitical discourse in relation to the Indo-Pacific.
In the estimation of the US Department of State, the sales of American military equipment to foreign governments rose by a whopping 49 per cent to $205.6 billion in 2022-23. The war in Ukraine significantly helped boost business. Indeed, under the lend-and-lease agreement, Ukraine is expected to pay for the US weaponry being supplied. Besides, NATO allies which transferred their existing Cold War inventory of outdated weapons to Ukraine are getting replacements with newly produced American weaponry.
Fundamentally, however, the question remains how far the bilateral trade, investment, technology transfer and so on would be gaining from Modi’s visit to the US. Here, alas, the signals from the ‘new Washington consensus’ are discouraging. A speech at the Brookings Institution in late April by President Biden’s National Security Adviser Jake Sullivan barely registered among the Indian commentariat; he declared national security and industrial policy as the guiding lights for US trade, while departing radically from the market-oriented, neo-liberal ‘Washington Consensus’ and invoking neo-mercantilist themes. Thus, industrial policy is essential to spark innovation in neglected sectors; heavy direct US subsidies and indirect subsidies through import protection are needed to attract private investment; tariff cuts are not on the table; market access provisions are out of the question; a rules-based trading system respecting market principles under WTO is not a priority. Quintessentially, it is ‘America First’ turning the back on free trade and globalist policies and focusing on bringing back manufacturing jobs. Sounds familiar? Yes, Sullivan recreated the spectre of a hollowed out US heartland which helped Donald Trump win the presidency in 2016.
It is a safe bet that between now and the US presidential election in November 2024 at least, the compass is set: the Biden administration has no interest in being an accommodating economic partner and market. Yet, this is happening at a time when the breaking news is that Eurozone, led by Germany, is sinking into depression. If the US can have a stony heart vis-a-vis the travails of its closest ally, what can India expect?
What optics does this convey? Indeed, Sullivan’s field of vision will prompt America’s partners to be extremely wary of the perverse growth effects of US protectionist policies. This is particularly disheartening for the basic openness of economic development in the Asian region, including India, for which high growth is sustainable only with access to international markets and investment. On the other hand, like Biden, Modi is entering an election cycle and India’s responses will also be mediated by political pressures within the country. The challenges from ‘below’ include calls for greater redistribution, for the abandonment of export-driven political economies in favour of greater domestic consumption and for more attention to poverty alleviation. Besides, the government also faces the challenge of integrating broader political movements e.g. the farmers’ agitation. The response to these challenges will also vary from attempts at greater inclusivity to the mobilisation of vertical allegiances that distract attention and would seek to displace material grievances through the politicisation of race, religion, caste, etc. The cycle of violence in Manipur bears testimony to the policy dilemma.
Furthermore, the Asian region is grappling with more than a transitory escalation in competition between great powers. For India, weathering the power transition in East Asia is particularly challenging too, as it is inextricably entangled with the unresolved boundary dispute with China and the explosive nationalist sentiments that complicate the resolution of differences and disputes rationally from a long-term perspective. In the past three decades, the Asian region prospered through increased integration into a Chinese-centric regional economy, while the US security role limited the incipient concerns of the regional states over any asymmetric interdependence. But this delicate equilibrium is changing and the old strategy will have no relevance in the period ahead, whilst the gravitational force of the Chinese economy as such along with the political appeal of the Chinese development model still remains significant.
In contrast, the US security role is under pressure too, what with the structural shift due to the surge in Chinese military and technological capacity as well as the prospect of waging a two-front war. Modi’s top priority ought to be to minimise the scope for a US-China conflict to play out in the Indian economy.
