Modi’s frenemies with Trump: A trade agreement that surprises only a few

  • + Modi’s diplomacy with Trump fosters their ‘frenemy’ status.
  • + Modi and Trump had been increasing tariffs for the past few years. 
  • + Trade deal fails to distract media from the communal riots in Delhi.
Source: Doug Mills/The New York Times

Why is Modi frenemies with Trump?

Answer: Trump’s visit to India gave hope to a few that the ‘mini trade war’ between the two would end. 

For those of you who were wondering why the US media was concerned about Trump’s inability to consume anything but a hamburger a few weeks ago, it was largely because of his two day trip to India to meet Narendra Modi. The reason: a Trade Deal between India and the USA. While the Trade Deal did not see the light of the day, relatively minor agreements were made between the two leaders.  

Back in 2018, Trump had included India in his ‘hit list’ of those countries that would be affected by his increase in tariffs on aluminium and steel. Then, last year, Trump also withdrew  India’s special status that had earlier saved the country billions of dollars while exporting to the USA. Things escalated to this level because Modi had increased tariffs on Trump’s beloved Harley Davidson motorbikes, along with apples, and almonds amongst 28 other goods to retaliate against Trump’s ‘hit list’. As one can tell, the economic ties between the two leaders have not been the strongest as of late.

However, considering how important trade with each other is to their GDPs, maybe more efforts should have been made to improve trade relations. The US is one of India’s most prominent trading partners while India is close to 9th for the USA. Bilateral trade had peaked at $142.6 billion in 2018 and high tariffs are bound to affect this. 

What does Modi want?

Answer: A win in foreign diplomacy to divert attention from the fiasco within Indian borders. 

Modi is set to buy $3 billion worth of attack helicopters and other military equipment from the USA to increase India’s military strength. As part of the deal, Exxon Mobil (a US firm) has agreed to import more Liquified Petroleum Gas (LPG) to India with the help of the Indian company, Indian Oil. Moreover, an Indian Virtual Pipeline Initiative is being created that will deliver fuel through “road, rail, and waterways to areas not connected by physical pipeline”. Consequently, such a deal would really help India increase its share of natural gas. Moreover, the International Development Finance Cooperation agreed to invest $600 million in renewable energy in India. 

Modi needs a win more than ever. The forecasted GDP growth for 2020 is 5.3% and unemployment is soaring. Adding to that, the communal riots in Delhi that started off while Trump was touring India have not helped Modi’s infamous reputation either. Criticism from media and public opinion has been sky-rocketing despite Modi’s attempts at curbing the protests. Amidst the domestic turmoil, a win in foreign policy would have helped Modi cool down some of his critics. 

A possible salvaging point could be that by diversifying his military portfolio, Modi reduces India’s reliance on Russia for military equipment while not upsetting the latter as well. Moreover, Modi could leverage this deal to strengthen his ‘chowkidar’ (or security guard) terminology that he coined to proclaim himself as the ‘protector of India’ from its neighbours, especially Pakistan.

Going back to the deal: Modi’s popularity runs on his idea of nationalism, as he is known for sticking to BJP’s ideologies and mandate. Thus, this is something that he has to maintain even in his foreign policy.  To pacify the domestic producers, higher tariffs on US imports is a viable idea for Modi. Furthermore, considering the warry nature of both populist leaders, a Free Trade Agreement would have been surprising. 

But at least, Modi is staying true to his political albeit populist personality where he continues to engage in bilateral agreements with countries that are key to India’s economic growth. Modi also likes to portray India as an amazing investment opportunity and this could have aided his case in some ways. Moreover, if Modi does succeed in providing fuel to urban as well as rural India, it will be seen as a great move from his side to push for India’s development. 

What does Trump want?

Answer: Trying to gain support from political leaders to get the upper hand in his conflict with Xi Jinping. 

Aside from approving Modi’s policies on ‘religious freedom’ and offering to mediate between Modi and Imran Khan (the Pakistani Prime Minister) over the Kashmir conflict,  Trump did not push for freer trade practices between the two countries. Yet, one thing that they possibly discussed at length is ways to constrain China’s geopolitical power. 

Although Modi would like to get some spotlight in the geopolitical sphere, unfortunately, in many ways, he’s still sidelined due to the larger Trump-Xi hostility. Trump needs Modi for this very reason. And Modi will readily agree, so long as his demands are also partially met. Bearing this in mind, Trump also needs Modi’s cooperation when he launches the Blue Dot Network in Asia-Pacific. During his speech, Trump also made a not-so-subtle snub at Xi Jinping when he said that Modi and he would also increase cooperation to improve the safety of 5G networks. There have been speculations with regards to 5G technology from China as the government has a high involvement in the companies which they could possibly use to their advantage to infiltrate communication networks during geopolitical conflicts. 

Besides, large India crowds chanting Trump’s name does quite a lot to boost his reputation back at home, especially with Indian-Americans. Although they don’t form a large part of his vote-bank, support from any American community will be appreciated as he stands for the Presidential elections. 

What is Trump doing? 

Answer: Small victories in India but greater success elsewhere. 

While Trump did mispronounce several Hindi words, we don’t think that’s the reason many people didn’t buy his ‘America Loves India’ comment. This is partially because Trump did not seem to have compromised on his high tariffs nor did he grant back India’s special status.  

Moreover, Modi and Trump did discuss combating radical Islamic terrorism, but his much-applauded deal with the Taliban just a few days after his trip to India seems to have won Trump a few points with his US citizens. Considering the magnitude of the deal, Modi’s small victory in his home ground has possibly gone unseen. It could also be observed that owing to the possible victory in the peace treaty with the Taliban, Trump did not feel that he needed to come with stronger agreements with Modi and hence, did not put in as much effort. 

In all honesty, nobody was expecting a free trade agreement between the two leaders either. With all the burdens of the past, a short, two-day visit and a few exchanges of pleasantries would not have led to the signing of a trade deal. Yet, the promise of a bigger trade deal with Trump by the end of this year could improve Modi and Trump’s ‘frenemy’ status. 

Who is winning and what about you? 

Answer: Well, if we had to choose, then it would be Trump. 

Since the ‘bigger deal’ got pushed to later on in the year, there is no clear winner. The only reason Trump is a possible winner here is because of his deal with Taliban that covered up for the delayed deals in India. This is why the two leaders have a frenemy status as of now; although there are tentative deals, they haven’t been signed yet. The ‘winner’ will only be decided upon if the two leaders implement three main agreements this year:  India would import 5 million tonnes of Liquified Natural Gas at a lower rate than their previous deals, sale of nuclear reactors, and concessional import of oil to Indian refineries. 

So for now, if you’re an Indian thinking of buying a Harley Davidson in the near future, maybe settle for a Yamaha. Keeping in mind that this deal involves two leaders, the number of stakeholders obviously double. So, for this case, Modi’s stakeholders will be taken into consideration. For domestic producers, tariffs imposed on the US goods seemed to have remained, thus maintaining the idea of job protection in the domestic sphere. But a trade war, even at such a small scale is not good for the Indian export sector, especially with the USA being one of India’s most important countries to export to. 

For those of you who might be wondering why this deal wasn’t much spoken of domestically, it could have been due to two reasons. One, more obvious reason, is that the deal did not lead to any monumental changes in the relations between the two leaders. The other reason is that for the past few years, Modi has shifted his focus from implementing ‘news-worthy’ economic policies to more infamous social or security-based policies. This is evident in the current condition of the Indian economy (although India is only reflecting a global phenomenon); the communal riots in Delhi and the CAA are proving to be great, if not ideal, distractions for Modi’s India. 

The energy deal with Trump is ambitious. But if it goes well, it could possibly help reduce the trade deficit in the future while also aid development. It would now be wise for Modi to shift his focus back to these economic policies which is why he won votes back in 2014. Shifting the media’s focus back to his economic policies could be his only shot at salvaging his reputation amongst the masses. 

Ishwari Sawant

Head of Research & Analysis