UPSC CURRENT AFFAIRS – 15 March 2025

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India-US Trade Relations - Balancing Flexibility with Firmness

Introduction:

The article discusses the evolving India-US trade relationship, emphasizing the need to balance flexibility with firmness to achieve mutual benefits.
It highlights the strategic importance of this relationship in the context of global trade dynamics and geopolitical shifts.

Why in News:

India and the US are key trade partners, with bilateral trade exceeding $150 billion in 2024.
The article is relevant for UPSC aspirants as it touches upon international trade, economic diplomacy, and India’s foreign policy, making it important for GS Paper 2 (International Relations) and GS Paper 3 (Economy).

Current State of India-US Trade Relations:

Trade Volume:
- Bilateral trade between India and the US has grown significantly, reaching $150 billion in 2024.
- The US is India’s largest trading partner, while India is the 9th largest trading partner for the US.
Key Sectors:
- Information Technology (IT): Indian IT companies contribute significantly to the US economy.
- Pharmaceuticals: India is a major supplier of generic drugs to the US.
- Defense and Aerospace: Increasing collaboration in defense manufacturing and technology transfer.

Challenges in India-US Trade:

Trade Imbalance:
- The US has a trade deficit with India, which has been a point of contention in negotiations.
Market Access Issues:
- US demands for greater market access in sectors like agriculture and dairy face resistance due to India’s domestic concerns.
Intellectual Property Rights (IPR):
- The US has raised concerns about India’s IPR regime, particularly in the pharmaceutical sector.
Tariffs and Non-Tariff Barriers:
- Both countries have imposed tariffs and non-tariff barriers on certain goods, leading to trade disputes.

Opportunities for Collaboration:

Supply Chain Diversification:
- The US and India can collaborate to diversify global supply chains, reducing dependence on China.
Technology Transfer:
- Increased collaboration in emerging technologies like 5G, artificial intelligence (AI), and quantum computing.
Renewable Energy:
- Joint efforts in solar energy, wind energy, and energy storage can strengthen trade ties.
Defense and Strategic Partnership:
- The Indo-Pacific strategy and defense agreements like COMCASA and BECA provide a strong foundation for trade and strategic collaboration.

Balancing Flexibility and Firmness:

Flexibility:
- India should adopt a flexible approach in negotiations to address US concerns while protecting its domestic interests.
- For example, offering limited market access in agriculture and dairy in exchange for technology transfer and investment.
Firmness:
- India must remain firm on issues like data localization, IPR, and tariffs to safeguard its economic sovereignty and domestic industries.
Strategic Diplomacy:
- Leveraging the Quad alliance and other multilateral forums to strengthen trade ties and address geopolitical challenges.

How India Can Deal with Trump's Protectionism & 'America First' Policy

Trade & Diplomatic Strategies
1. Bilateral Trade Negotiations – Push for a fairer trade deal to reduce tariffs on Indian goods like steel, textiles, and pharmaceuticals.
2. Leverage WTO & Trade Forums – Challenge unfair US tariffs through the WTO and seek global trade support.
Expand Free Trade Agreements (FTAs) – Strengthen trade ties with EU, ASEAN, UK, and Middle East to reduce dependence on the US market.
Use Geopolitical Leverage – Strengthen QUAD, I2U2 (India-Israel-UAE-USA), and Indo-Pacific alliances to negotiate better trade terms.
Economic & Industrial Policies
1. Boost Domestic Manufacturing – Strengthen the Make in India and PLI (Production Linked Incentive) schemes to reduce reliance on US imports.
2. Enhance India’s Competitiveness – Lower corporate taxes, improve logistics, and cut red tape to attract global businesses.
3. Strengthen the Rupee & Forex Reserves – Reduce external trade vulnerabilities by promoting exports and foreign investments.
Sector-Specific Adjustments
1. Expand IT & Digital Services – Focus on software exports, AI, and fintech, where India has an edge, avoiding tariff barriers on physical goods.
2. Develop Alternate Markets for Pharma – Strengthen pharmaceutical exports to Latin America, Africa, and Europe to counter potential US trade barriers.
3. Reduce Agricultural Dependence on the US – Expand agri-exports to Russia, UAE, and Southeast Asia to reduce risks from US restrictions.
Countering US Trade Pressures
1. Strategic Retaliatory Tariffs – Impose counter-tariffs on US products like almonds, apples, and medical devices to balance trade pressures.
2. Attract US Companies to India – Offer incentives for US firms to set up manufacturing units in India, creating a win-win scenario.
3. Strengthen Energy Ties with Iran & Russia – Reduce dependence on US oil and gas imports by securing stable energy sources elsewhere.
Global Alliances & Alternative Strategies
1. Strengthen BRICS & Global South Ties – Align with BRICS, ASEAN, and Africa to counterbalance US economic dominance.
2. Leverage China-US Tensions – Position India as a stable alternative to China for supply chains and manufacturing.

Conclusion:

The India-US trade relationship is strategically important for both countries, offering opportunities for economic growth and technological collaboration.
Balancing flexibility with firmness in trade negotiations is crucial to achieving mutual benefits and addressing challenges.