[Prime Minister Narendra Modi meets Vladimir Putin, President of the Russian Federation, in July 2024. Photo by MEAphotogallery, via Flickr (CC BY-NC-ND 2.0)]
The Context
As we’ve seen in the two previous briefings, much of today’s trade is determined by security and economic realism, and the US-China rivalry. There’s also a Russia factor and a growing Russia-China alliance. Here’s a quick look at the tapestry as it looks today for the US and the EU, and some factors that India operates under.
The US Factor
Dr. Evan A. Feigenbaum, Vice President for studies at the Carnegie Endowment for International Peace, and a speaker at our Masterclass on August 29 recently wrote on the US-China issue, arguing: “The Trump and Biden administrations, on a bipartisan basis, have leveraged American dominance of high-end technology, such as small nanometre chips, to curtail China’s ambitions in frontier industries…They deploy a sprawling kitbag of administrative tools, such as the Commerce Department Entity List, to make it harder to transfer technology and skills to China. And they have made collaboration with Chinese tech firms politically toxic—for example, by listing Chinese firms involved with any dual-use capability, whether they are state-owned or private, on a Defense Department list of “military-linked” companies, even if they mostly do commercial production, sales, or service.”
Then consider these factors:
1. For the US, key geostrategic goals today include:
- Reduce dependencies on China. Stay competitive, ideally ahead, across both military and economics to perpetuate its liberal international order, providing global public goods like the freedom on the seas on its own terms.
- Drive domestic manufacturing-led employment, especially in technologies at the frontier. Across both sides of the aisle, policy makers appear focused on trade policies that drive employment, and raise wages, rather than consumer benefits. Both the Biden administration’s Katherine Tai and Trump crony Robert Lighthizer appear to have largely similar views on the issue.
- Play all national security tools, including tougher tariffs. Note how the US Committee on Foreign Investment has slowly begun to play a role over how the country interacts with the global economy in recent years.
2. However:
- The US might find it no longer has the leverage it once did to shape Asian trade and economics, where any emerging order will be influenced by China, India, Japan, South Korea and groupings like ASEAN, particularly across digitalization and digital trade, frontier and climate change technologies.
- The US remains unwilling to commit to trade policy as a broad foreign policy tool. The backsliding over IPEF, and the reluctance to enter pacts like the TPP, are stark pointers. This further reduces leverage. FTAs, as a policy, have never truly entered US lexicon.
- To constrain Beijing’s ability to misuse its growing power in Asia, Washington must move faster to minimize China’s regional asymmetric economic advantages through a comprehensive strategy that combines its own strengths with the economic power of Japan, South Korea, India, Australia, Singapore and smaller states like Indonesia and Vietnam.
- The US has been unable to build such a strategy. Older paradigms prevail in some US policy circles, somewhat restraining its willingness to commit to unequivocal economic relationships with, say, an India, Vietnam or Indonesia.
The EU Factor
The EU’s concerns, too, center around China and Russia and their growing economic and military alliance:
- The EU seeks security following Russia’s invasion of Ukraine. Some like France’s President Macron worry about NATO’s future, with good reason.
- Brussels is uncomfortable that Europe’s leading economic powers are compelled by economics to view both Asia and the US, through a lens clouded by China.
- The EU, despite some contrary perceptions arising from an economically insecure Germany and an Orban-led Hungary, have understood China as a competitor and a systemic, hegemony-seeking power.
- The EU recognises that its leverage over Asia is somewhat limited. Last year, Josep Borrell, EU’s foreign policy chief, admitted: “Europe is still largely seen as an extra-regional actor with limited impact on the regional security dynamics of the Indo-Pacific”.
- Globally, the EU’s ability to project either economic or military power remains low, given its external economic dependencies and internal domestic institutional constraints.
India’s State of Play
In his 2022 book, The India Way: Strategies for an Uncertain World, India’s Foreign Minister, S. Jaishankar, spelt out India’s approach succinctly: “The future is more one of the management of differences and finding some stability in a changing dynamic… India cannot give any other nation a veto on its policy options. This is particularly so in a world when all significant players are trying to be as open-ended on their own choices.”
The Russia factor still limits Western views of India, though the US has been willing to ignore India’s massive purchases of Russian oil. Admittedly, these purchases played a vital role in ensuring that global crude prices remained stable. However:
- India hasn’t condemned Russia outright over Ukraine. But Prime Minister Narendra Modi enveloped both Russia’s Vladmir Putin and Ukraine’s Volodymyr Zelenskyy in bear hugs in their respective capitals—Moscow and Kyiv.
- Last December, Jaishankar called the India-Russia relationship “exceptional” and termed it the “one constant in world politics”. Russia’s covert actions during some India-China crises, and the exercise of its UN veto over Kashmir remain vital for New Delhi.
- On the ground, nevertheless, India appears to be quietly reassessing, perhaps even gradually relegating its relationship with Moscow to something of a secondary status. The Stockholm International Peace Research Institute (SIPRI) indicated that Russia’s share of Indian arms imports had shrunk from 76 percent in 2009–13 to 36 percent in 2019–23. Yet, nearly 60 percent of India’s in-service military platforms are of Russian origin. Despite media noises, concrete moves that effectively further trade ties are absent.
- New Delhi remains extremely worried by Moscow’s dependent relationship with Beijing, but finds itself dependent upon both in many ways, too. India recorded its highest trade deficit of $41.6 billion with China during the January-June 2024 period, according to the Global Trade Research Initiative (GTRI), highlighting its considerable dependencies across several key industry sectors and the limitations of its domestic manufacturing ecosystem.
The Drivers and the Constraints
Yet, the US features deeper in India’s calculus than ever before. As Richard M. Rossow, Senior Adviser and Chair in US-India Policy Studies at the Center for Strategic and International Studies (CSIS), and a speaker at our Masterclass on August 29, wrote recently: “The key driver behind India’s evolving web of security partnerships will remain the same—an increasingly belligerent China. The United States’ willingness to share advanced weapons systems, contribute to India’s domestic defense manufacturing, and offer assistance during periods of military tension with China provides a strong foundation that should withstand political change.”
- Just hours before Modi enveloped Zelenskyy in a bear hug in Kyiv on August 22, the US Department of Defense (DoD) and India’s Ministry of Defence announced they had signed a bilateral, non-binding Security of Supply Arrangement (SOSA). The 18 other countries that have signed the SOSA are mainly NATO members, besides Japan, South Korea and Singapore. The agreement is, in itself, significant. It commits New Delhi and Washington “to support one another’s priority delivery requests for procurement of critical national defense resources”. India’s Defence Minister Rajnath Singh reached Washington while Modi was in Kyiv.
- India has signed the India-US Initiative on Critical and Emerging Technology (iCET), the Minerals Security Partnership, and the Artemis Accords with the US, besides gaining tariff concessions on products like steel. It’s a member of the Quadrilateral Security Dialogue (Quad)—a strategic security dialogue between Australia, India, Japan, and the US.
- In June 2022, while speaking at the Globsec 2022 forum in Slovakia, Jaishankar pointedly said that India’s membership of the Quad “should tell you which direction we are going”. India is also a part of the Indo-Pacific Economic Framework for Prosperity (IPEF), though the grouping hasn’t seen substantial movement.
- The US and China remain India’s top two trade partners. However, New Delhi will find it challenging to maneuver between the US and China on trade, technology and investment, despite Beijing’s revanchist threats on India’s borders.
- India is the EU’s 10th largest trading partner. An FTA discussion has long been hanging fire, but concerns within New Delhi draw around the limitations of India’s domestic manufacturing ecosystem and the advantages the EU might gain therein.
Academics still debate about the precise cause and effect links between foreign policy driven by security and trade. Yet, statecraft must deftly combine both. India’s tricky position points to an interesting discussion at our Masterclass on August 29. Tune in.
Dig Deeper
- India’s National Election: Surprise and Stability | By Richard M. Rossow, Senior Adviser and Chair in US-India Policy Studies at the Center for Strategic and International Studies (CSIS), and a speaker at the Masterclass
- How China Wants High-Tech To Power Its Economy To The Top | By Dr. Evan A. Feigenbaum, Vice President for studies at the Carnegie Endowment for International Peace, and a speaker at the Masterclass
- ICYMI: Click here to see the full package
- Masterclass Briefing #1: How a fragmented world will impact trade and corporate strategy | By Vivek Y Kelkar
- Masterclass Briefing #2 | India and the Indo-Pacific: Geopolitics, geo-economics and India’s positioning in the region | By Vivek Y Kelkar
- Masterclass recording and summary
