In this June 20, 2018 file photo, Catoctin Creek Distillery whiskey is on display in a tasting room in Purcellville, Va. (Photo: AP)
American dairy farmers, distillers and drugmakers have been eager to break into India, the world’s seventh-biggest economy but a tough-to-penetrate colossus of 1.3 billion people.
Looks like they’ll have to wait.
Talks between the Trump administration and New Delhi, intended to forge at least a modest deal in time for President Donald Trump’s visit that begins Monday, appear to have fizzled. Barring some last-minute dramatics — always possible with the Trump White House — a US-India trade pact is months away, if not longer.
“I’m really saving the big deal for later on,” Trump said this week. “I don’t know if it will be done before the election, but we’ll have a very big deal with India.” The US presidential election is Nov. 3.
For now, the failure to reach a deal, despite the pressure of an approaching summit, may reflect not so much the differences between Trump and Indian Prime Minister Narendra Modi as the similarities. Both men are fierce nationalists who favor protecting their own producers over opening their markets to foreign competition.
“You’ve got two leaders who are looking at trade very much as a zero-sum game,” said Richard Rossow, a specialist in US-India relations at the Center for Strategic and International Studies.
Long notorious for high trade barriers and a cumbersome bureaucracy, India had for the past two decades or three decades been slowly reforming and opening its economy. Under Modi, that trend has reversed.
Regarded as a business reformer when he took office in 2014, Modi has increasingly turned protectionist, matching Trump’s “America First” example with “India First” policies of his own.
“US behavior on the trade front has pushed India in the opposite direction of where we could like it to go,” Edward Alden, senior fellow at the Council on Foreign Relations, told reporters Friday.
One of Trump’s first acts was to withdraw from a 12-country Asia-Pacific free trade pact negotiated by the Obama administration. Similarly, Modi last year abandoned another Pacific Rim trade agreement, worried that India would be overwhelmed by Chinese imports.
Modi may be even more sensitive about exposing Indian companies to foreign competition because his country is in an economic slump. The International Monetary Fund last month scaled back its expectation for India’s growth this year to 5.8% from the 7% it had expected back in October. Indian loan companies, struggling to collect on bad debts, have reduced lending, thereby squeezing Indian consumers.
The Trump administration escalated the pressure on India last year by denying some of its products preferential duty-free entry to the American market. In effect, that move raised tariffs on Indian imports.
The administration is annoyed by a deficit in the trade of goods with India that last year reached $23.3 billion. The Office of the US Trade Representative last year argued that India had failed to provide assurances that it would give US products “equitable and reasonable access” to its markets.
The thinking was that India would make concessions to regain its duty-free benefits. But India hasn’t yielded yet.
“We had hoped that India would respond with a little more urgency,” said Roger Murry, senior policy adviser at the law firm Akin Gump Strauss Hauer & Feld.
Negotiations between US Trade Representative Robert Lighthizer and India’s commerce minister, Piyush Goyal, seemed to be advancing until about a week ago. Yet they failed to bridge their differences.
“I would have thought they would have been able to pull off a mini-deal,” said Safiya Ghori-Ahmad, an India specialist at the consulting firm McLarty Associates. “It seems there are a lot of sticky issues.’’
One irritant is that just as negotiators were scrambling to conclude an agreement, India this month made another lurch toward protectionism. It issued an annual budget that raises import taxes on everything from cheese to shoes to toy tricycles.
The two sides have also squabbled over access to India’s dairy market. A predominately Hindu nation, India prohibits, on religious grounds, dairy imports that do not derive from cows that have been raised on vegetarian diets. The US dairy industry argues that such restrictions are scientifically unnecessary and burdensome.
The administration has complained, too, about Indian restrictions on imported medical devices. In 2017, Indian officials imposed price controls on coronary stents and knee implants, forcing American companies to sell those products at a loss.
US distilleries also have a big stake in a more open Indian economy. India is by far the world’s largest market for whiskey. In 2018, Indian drinkers downed nearly 1.7 billion liters of whiskey, worth $25 billion, accounting for half the world’s consumption and out-drinking Americans by a factor of three, according to Euromonitor. But facing 150% tariffs on imported spirits, US distilleries sold just $7 million worth whiskey to India in 2018, according to the Distilled Spirits Council of the United States.
“There is no doubt that India has turned protectionist during the last two to three years,” said Columbia University’s Arvind Panagariya, a former Indian government official and a specialist in India’s economic policymaking. “And that is surely making matters more difficult by hardening Indian positions.”
Still, Modi puts a high value on a strategic partnership with the United States, especially in the face of an increasingly assertive China. For that reason, he may be willing to make trade concessions for stronger ties with Washington.
“I remain optimistic about an agreement in due course,” Panagariya said.
But Sadanand Dhume, resident fellow at the conservative American Enterprise Institute, said he was discouraged by the failure of negotiators to reach a modest, confidence-building deal before the Trump-Modi summit.
“The ambitions were small to begin with,” Dhume said. “If a presidential visit cannot force these two countries to get over a small speed bump, that really does not augur well’’ for a more ambitious trade agreement.