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How Will the Joe Biden Presidency Impact India-US Relations?

Editor, TRANSFIN.
Nov 24, 2020 12:20 PM 5 min read
Editorial

When Joe Biden was declared the winner of the 2020 US Presidential election, not many international affairs observers expected a tectonic shift in India-US ties.

Same Wine, New Bottle

Indeed, forging a stronger alliance with India is one of the few areas where Biden and Donald Trump saw eye-to-eye.

As the world’s largest democracy, the third-largest Asian economy, and a potential bulwark against China, India is widely seen as enjoying bipartisan consensus in Washington.

The same goes for President-elect Biden. As Senator and then as Vice President during the Obama years, he championed closer ties with New Delhi. He was one of the early proponents of the 2008 nuclear deal, which fundamentally altered relations between the two democracies. In 2006, he said, “My dream is that in 2020, the two closest nations in the world will be India and the United States.”

But that’s not to say that the dynamic between the two countries will remain entirely unchanged under the incoming Biden administration. There are places where Biden’s approach is expected to differ from Trump’s - and not all the changes might work in India’s interests.

 

Broad Strokes

Let’s begin with the obvious. Biden’s diplomatic style will be more...diplomatic than Trump’s. The mercurial unpredictability and unilateralism that was typical of the Trump White House will likely give way to a more patient and multilateral consensus- and compromise-oriented foreign policy.

Proactive (and perhaps constructive) involvement in international trade blocs and organisations such as the TPP, WTO, NATO and UN will be back on the table. A proclivity for pursuing bilateral trade pacts will be replaced by renewed multilateralism. Immigration policy vis-a-vis the H-1B work visas will be more conducive and welcoming. And spearheading global action against climate change will return as a top priority – notably, with rejoining the Paris Climate Agreement.

These developments bode well for India, which counts the US as a strategic ally and partner in many areas, from trade and the economy to geopolitics and the environment.

Now, coming to the areas where the Biden administration may simply continue with Trump’s policies – even if it means doing so at India’s expense.

 

Digital Taxation

India has a vast and lucrative digital economy. But Big Tech companies like Google, Facebook, Amazon, Apple etc. Have for long tried to avoid paying their share of corporate taxes by diverting their profits to other, low-tax jurisdictions. By one estimate, the tax outgo of tech giants is $100bn lower on account of tax evasion practices.

To fix these loopholes, India and other countries began imposing digital levies aka the “Google Tax”. To ensure uniformity in international digital taxation, the OECD announced that it would come out with a common tax outline under the Base Erosion and Profit Shifting (BEPS) framework by the end of this year.

Most large economies are onboard…except the US.

Since most large tech firms are based in the US, the Trump administration had lambasted these digital levies as unfairly targeting American companies. It threatened reciprocal levies of its own as retaliation: a France-US trade war was narrowly averted last year. In June, Washington initiated probes against countries that have imposed digital taxes, including India. (The result of this probe is expected by December.)

Now, while President Biden can be expected to have more confidence in reaching an OECD-brokered deal on the issue, there is no reason to believe it would look very kindly on unilateral or increased taxation of American companies. After all, the bipartisan Big Tech consensus on Capitol Hill goes both ways - both major parties want to protect American companies the same way both major parties want to reel in Big Tech.

So unless a comprehensive global deal on digital levies is reached in the near-term, India's “equalisation levy” on tech cos might not go unanswered.

 

Trade Ties and Tariff Tirades

Under President Trump, India-US trade ties were rocky, to put it mildly. He routinely criticised India as “tariff king”, denouncing its tariffs on everything from tech companies to Harley-Davidson motorbikes.

In 2019, the US removed India from its Generalised System of Preferences (GSP), which exempted import duties on certain goods. Steel and aluminium import tariffs were also raised. India retaliated with tariffs of its own on US products.

A full-blown tit-for-tat trade war was narrowly avoided when trade representatives from both sides sat down to hammer out a trade deal. But so far, despite the heavily publicised “Howdy Modi” and “Namaste Trump” galas, no deal has surfaced.

A Biden administration may be more inclined to compromise on Trumpian sticking points - like access to India’s agriculture and dairy sectors. India’s re-entry into the GSP can also be anticipated.

But expect trade tensions to remain. Why? Because for starters, American trade policy is not merely a matter of executive diktat - it is also reliant on the US Congress, where both major American parties hold sway. And secondly, protectionist rhetoric may not follow Trump out of the White House. Biden ran on a platform of “Buy American” - which is just another way of saying “America First”. Trumpism might very well outlast Trump. (To say nothing of the protectionist winds blowing over Atma Nirbhar-crazy India itself!)

 

Pushback Against China

One of the lasting legacies of the Trump era would be its recognition of China as a geopolitical and economic threat.

Before 2016, Democrats and Republicans alike were more or less happy aiding and abetting China’s rise. With Trump, relations between the world’s two largest economies radically - and perhaps lastingly - changed.

Suddenly, China’s record on human rights, corporate espionage, intellectual property theft and protectionist tariffs came under the spotlight. Beijing’s aggression in Hong Kong, Taiwan, Tibet, Xinjiang and the South China Sea (SCS) exacerbated matters. And a trade war began, even as ties between the two nations dangerously decelerated.

India has sought to benefit from these tensions. As American multinationals sought to “de-link” and decrease their reliance on China, India sought to court them and project itself as a manufacturing and investment hub. Whether these attempts have been fruitful or not is debatable, but the fact remains that a less chummy relationship between Washington and Beijing does Delhi more good than harm.

Joe Biden’s China policy is largely unclear. On one hand, his faith in old school diplomacy may urge him to form an international coalition to negotiate with Beijing and come to a compromise. His intentions to restart talks on the Iran Nuclear Deal and rejoin the Paris Agreement would invariably require China’s support and involvement. And the post-COVID economic recovery may be ill-suited for continued trade conflicts between the countries. A return to Obama-era accommodation of China may placate global investors’ fears and decelerate their flight from China. Which isn’t great news for India.

But on the other hand, Biden may continue with Trump’s hardline China policy. Four years is a long time in geopolitics, and views of China in Washington today are systematically different from the same before 2016. China is stronger and more assertive - bordering on expansionist. Its Belt and Road Initiative represents a direct challenge to American hegemony. Its activities in the SCS are damaging US trade and strategic interests. Its inroads in Europe, Africa, Latin America and elsewhere with its so-called “debt trap diplomacy” would concern any US President.

Not to mention, Beijing has a fatter wallet and a larger military arsenal this time around. Biden or Trump, the US backlash against China’s rise may very well carry on.

And India surely won’t be complaining.

FIN.

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