American foreign economic policy under the Biden-Harris Administration is taking shape. Raisina Hill and India Inc., take note. America is on course for continuity with some Trumpian policies, most notably linking trade, national security, and employment, though not on the environment or Iran. Already, there’s a markedly different style from the erstwhile Raj: no more rude tweets that disrupt trade relations; much more engagement with friends.
India is a friend of the U.S., but that doesn’t mean all will be well in Indo-American trade relations in a Joe Biden Era characterised by continuity and change. Only if India is an astute, empathetic student of President Biden’s Executive Orders and actions will it capitalise on the chance to expand bilateral commerce. India’s government and business leaders need to build on areas of consonance and manage areas of dissonance.
This column focuses on three vital areas of consonance: supply chains, climate change, and Iran.
Supply Chains
President Biden’s Feb. 24 Executive Order is a game-changing opportunity for India. Biden wants reliable supply chains, and whether India deeply integrates itself in those chains, or stays at the margins, depends on India’s response.
The Order doesn’t judge imports from India (or other democracies from Australia to the European Union and Canada to Korea), as impairments to America’s national security. So, there’s no threat to whack Indian exports with tariffs under Section 232 of the Trade Expansion Act of 1962. That’s a contrast from Trump’s 25% and 10% tariffs on Indian steel and aluminum, respectively. Rather, President Biden is studying vulnerabilities in America’s supply chains (emphasis added):
The Order … does two things. First, it orders a 100-day review of four vital products: semiconductors – one; [two,] key minerals and materials, like rare earths, that are used to make everything from harder steel to airplanes; three, pharmaceuticals and their ingredients; four, advanced batteries, like the ones used in electric vehicles…
Second, this Order initiates a long-term review of the industry basis of six sectors of our overall economy over the next year. [Those sectors are defense, public health and biological preparedness, information and communications technology, energy, transportation, agriculture and food.] These reviews will identify policy recommendations to … fortify our supply chains at every step.…
India should manoeuvre to be part of America’s reliable supply chains for the four vital products and six sectors. These areas are ones in which India holds an actual or potential international comparative advantage, consistent with ‘Make in India’ and becoming an export powerhouse.
For all four products, the Order mandates the identification of “risks in the supply chain.” India needs to show its producer-exporters, relative to those from America’s strategic competitors, don’t suffer from, or can better manage, “[p]andemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition”.
The Order suggests how India can prove its case. It invites consultation from “outside stakeholders,” and identifies the Assistant to the President for National Security Affairs and Assistant to the President for Economic Policy as the senior coordinating officials. So, India needs to talk to APEP and APNSA. जल्दी! (Jaldee, Soon!) The reviews are due in 100 days.
For the six sectors, India must show it does not pose “defense, intelligence, cyber, homeland security, health, climate, environmental, natural, market, economic, geopolitical, human-rights or forced-labor risks or other contingencies that may disrupt, strain, compromise, or eliminate the supply chain.” In the ICT sector, the Order complements a Trump-era rule allowing the Department of Commerce to intervene in contracts between U.S. and foreign companies that threaten supply chain security. India should remind the DoC it won’t need to exercise that authority if the counterparties are Indian.
Here, too, the Order guides India. America will consider “allied and partner actions, including whether United States allies and partners have also identified and prioritized the critical goods and materials and other essential goods and materials identified … [by the U.S.], and possible avenues for international engagement.” (And, the Order builds on one President Trump issued in September 2020 defining 35 minerals as “critical.”)
The President’s “bottom line is simple: The American people should never face shortages in the goods and services they rely on, whether that’s their car or their prescription medicines or the food at the local grocery store.” America “shouldn’t have to rely on a foreign country – especially one that doesn’t share our interests or our s – in order to protect and provide our people during a national emergency.” India’s got the same bottom line, right? It shares America’s interests and s, and America can depend on India in a national emergency.
Green Trade
In no field is President Biden more active than the environment. That’s the “existential threat,” as he’s oft-repeated and as Indians well know. Within hours of his Jan. 20 Inauguration, he re-entered America into the December 2015 Paris Agreement, which India ratified in October 2016. That day, via an Executive Order, he cancelled Canada’s Keystone Pipeline permit. Here again, India can find consonance if it studies the Order.
Indeed, that Inauguration Day Executive Order intones that his Administration’s policy is “to listen to science; to improve public health and protect our environment; to ensure access to clean air and water; … to hold polluters accountable …; to reduce greenhouse gas emissions; to bolster resilience to the impacts of climate change,” and to “prioritize both environmental justice and the creation of well-paying union jobs necessary to deliver on these goals.” (emphasis added)
The end to the Trump-era bunkum about climate change means India can hold a rational conversation with the U.S. about green trade.
More dramatically, in his Jan. 27 Order, President Biden declared (emphasis added):
climate considerations shall be an essential element of United States foreign policy and national security. The United States will work with other countries and partners, both bilaterally and multilaterally, to put the world on a sustainable climate pathway.
This Order targets 2035 for the U.S. to achieve a carbon pollution-free power sector (Section 205), and 2050 for the U.S. to have a net-zero carbon emissions economy (Section 201).
1. World Trade Organization
The two countries can collaborate to re-invigorate the plurilateral Environmental Goods Agreement by agreeing on a list of merchandise qualifying for duty-free, quota-free treatment. Further, India can work with America in respect of international financing for climate change. The Order specifically calls for a “climate finance plan” to help developing countries and a halt to international financing of carbon-intensive fossil fuel-based energy.
2. Free Trade Agreements
Suppose the U.S. re-joins the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and India seeks CPTPP admission and/or an FTA with America. The two countries can work on a precedent-setting “new chapter on trade and climate change, with provisions that encourage the development and distribution of renewable energy resources, ban fossil fuel subsidies, and promote cooperative green growth initiatives to reduce greenhouse gas emissions.”
3. Bilateral
India can pick up on the language of the Order that calls for far-reaching reforms under a “whole-of-government” approach whereby a new White House Office of Domestic Policy Climate Policy and National Climate Task Force that will develop and coordinate among central and sub-central governments, and across all economic sectors, action plans and policies to fight climate change. India needs to explain to the Task Force how it can provide goods and services in their shared battle for environmental justice.
India should remove a stumbling block to progress on all three levels, namely, its long-standing feud with the U.S. on solar energy products. Surely it can work out reasonable market access terms and subsidy disciplines.
Iran
America shouldn’t eye Iran through Saudi Arabian spectacles; indeed, President Biden has taken successful military action against Iran’s proxies in Syria – without the Saudis. But, the U.S. could benefit from India’s wisdom and experience to resurrect the July 2015 Joint Comprehensive Plan of Action.
President Biden released America’s conclusions that Crown Prince Mohammed Bin Salman is responsible for the brutal murder of Jamal Khashoggi. That, plus the President’s disdain for hydrocarbons, and desire to extricate from the tragic Yemeni quagmire, is why Biden is “recalibrating” (downwards) relations with Riyadh. The President told Saudi King Salman, “the rules are changing.”
Also Read: What America Can Learn From India About Iran
India is the rare ancient, non-western power that enjoys good relations with Tehran and Washington, D.C. Yet, India’s been hobbled by compliance with America’s extraterritorial application of its Iran sanctions regime, namely, the comprehensive secondary boycott of all trade, investment, and financial relations.
Indian companies would love nothing more than to be relieved of this America-versus-Iran conflict of law pressure.
With a reinvigorated JCPOA, trade of Iran’s energy for India’s agricultural, industrial, and services products could come out from the shadows and burgeon once again.
India has the chance to use its influence with both sides, and thereby speak for most of the rest of the world. Iran and America are stuck in a false, puerile dichotomy: “no talks until sanctions relief” versus “no talks until full compliance.”
India can counsel them to back off their sequencing problem as to who goes first – sanctions relief by America, or compliance by Iran? Why not both, simultaneously or contemporaneously, verified by India? Unofficially, Iran hinted at flexibility India could leverage: Iran would resume talks if the U.S. clearly signals it’ll lift sanctions within one year.
Shift To The Subcontinent
It’s almost impossible to overstate how focused America is on China and the climate, and fed-up it is with Saudi Arabia. Therein lies India’s historic opportunity: support a gradual diminution in reliance on the Middle and desert Kingdoms, and shift to the Subcontinent.
Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.
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