Regrettably, neither U.S. Presidential candidates has paid much attention to India, but because both have taken anti-free trade positions, it is unlikely either of them as President would reach out to India with free trade agreements. Aside from spotty efforts to court funds and votes from Indian-Americans, both Republican nominee Donald Trump and his Democratic opponent, Hillary Clinton, have regressed to the Cold War era with respect to India. Each conveys the impression that India is the biggest country that does not matter, with a pejorative update: cheap industrial labor in India continues to erode American manufacturing jobs and incomes, and cheap services suppliers in India continue to attract offshoring and outsourcing.
Making Trade Liberalisation Palatable
Therein lies a failure of leadership, of intrepid education of the electorate with the long-term in mind. Few Americans realize India is the world’s largest free market democracy. Neither candidate has shown courage to explain what the avatars of free trade, the classical economists, Adam Smith and David Ricardo, taught through their respective theory of absolute advantage and law of comparative advantage. Free trade results in net gains to a country thanks to the specialization of production that leads to greater consumption aggregate output, and thus greater consumption opportunities at lower prices. Yet, these benefits are not distributed evenly, hence the “winners” from trade should transfer some of their gain to the “losers” to compensate them for their job losses and income declines.
Simply put, trade liberalisation is politically palatable if it is economically fair, and that fairness comes from the contemporaneous reduction of trade barriers with adjustment assistance to dislocated workers.
Free Trade: A Scapegoat
Both candidates exacerbate xenophobia among the electorate, misreading trade history by emphasising costs over benefits. In doing so, they grossly confuse correlation with causation. The vast majority of job losses and income declines that have occurred since the U.S. entered the North American Free Trade Agreement (NAFTA) in January 1994, and since China joined the World Trade Organisation(WTO) in December 2001, stem not from free trade, but from technological change.
Would Americans prefer low value-added textile and apparel assembly near Mumbai or call center reception outside Delhi, or high value-added manufacturing of precision medical instruments in Ohio and supply of water conservation services from Kansas?
The answer should be obvious. But, high value-added jobs require Americans to be able to analyze critically a passage from a Nobel Prize winning poet like Rabindranath Tagore, know who Jawaharlal Nehru was and why he mattered, work with ease on excel spreadsheets, and understanding what atoms and molecules are. For many cash-strapped, debt-laden families, quality training in English, history, computers, and science is beyond reach.
For both candidates, it has been easier to point to India as a competitive trade threat and demand protections against Indians, than to point to themselves for a credible education strategy, funded by credible tax policies, to meet technological change.
TPP: India’s ‘Best Hope’
Their preference for outward finger-pointing over domestic introspection means the implications on trade for India of either President Trump or President Clinton are minimal. Both candidates have ruled out the single most impressive opportunity to engage India on trade: The Trans Pacific Partnership (TPP). This 30-chapter free trade agreement spans 6,000 pages, and while many of its provisions manage rather than free up trade, it sets out rules from which both America and India can benefit. They are “WTO Plus” rules, in that they upgrade and extend beyond the 1994 WTO texts to account for new areas such as electronic commerce, government procurement, intellectual property, state owned enterprises, and women’s rights.
America’s long-term economic interests are to encourage the reform process in India, with India’s TPP accession in mind.
In their protectionist rhetoric, the candidates neglect more than shared Indo-American trade gains. They fail to advance shared Indo-American security interests to counter Chinese dominance across its infamous Nine Dash Line in the South China Sea, that runs 2,000 kilometers from the Chinese mainland to the Philippines, Malaysia and Vietnam, and to combat terrorist violence from an array of deadly threats.
Closer economic relations through FTAs underpin and reinforce stronger national security ties, so it is no surprise eight U.S. Secretaries of Defense and four Secretaries of State have endorsed TPP. Some of its rules would help counter practices condoned by the Chinese Communist Party that Indian business interests would find dubious. Poverty alleviation is another dimension of several of its provisions, which matters insofar as it helps diminish the pool of recruits for extremist organizations.
Lessons from history can illuminate the future. If there is hope for India in American trade policy, it may lie in the new President learning about America’s first major trade treaty, the 1795 Jay Treaty. The deal between the new American republic and its former colonial master, England, preserved peace between the two by assuring the Crown that the United States would not side with France in the Anglo-French wars. The deal also opened to American merchants a vital new market: India.
Raj Bhala is Associate Dean, International and Comparative Law, and Rice Distinguished Professor at The University of Kansas, School of Law.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.