India-US trade deal: Relief today shouldn't come at the cost of autonomy tomorrow

At last week’s HT Leadership Summit, foreign minister S. Jaishankar exuded confidence in a firm assertion of India’s “strategic autonomy” and “freedom of choice” in its global partnerships. Similar steadfastness will be needed to avoid the pitfalls of what the US is likely to push for.

To be sure, any deal with the Donald Trump administration won’t be about long-term gains, but a short-term reprieve for India’s exports to the US of textiles, garments, shrimp and agricultural as well as food products, all of which have borne the brunt of Washington’s ‘reciprocal’ and punitive tariffs that add up to 50%.

These tariffs are widely acknowledged to violate the rules of multilateral trade—rules that have been found to be ineffective in holding a member accountable for its breach. Ironically, where 165 members of the World Trade Organization could not succeed, a legal challenge in the US by several small importers has raised the possibility of some relief.

The US Court of International Trade and Court of Appeals has ruled that President Trump had no legal authority under the International Emergency Economic Powers Act to impose reciprocal tariffs.

The ball is now in the US Supreme Court. At hearings last month, the US top court seemed unpersuaded by the government’s argument that the Act allows the president to regulate imports by imposing tariffs. Its judgement is awaited.

If it strikes down the tariffs, it would necessitate a rollback by the US administration to the original tariff levels of 3-3.9% that India was facing on most goods, given its most favoured nation status, except for auto, steel and aluminium exports, which were facing 25- 50% tariffs on ‘national security’ grounds.

What happens to US agreements already concluded, including with the EU and UK? PIIE, a US-based think-tank, notes that there could be an unravelling of those agreements and possible retaliation.

Given that a US Supreme Court ruling could come any day, India’s government may want to bide its time a bit more and wait for the dust to settle before it acts.

Lessons can be drawn from the experience of US agreements with Vietnam, Malaysia, Cambodia and Thailand, each of which was pushed to reduce barriers for US goods, adopt American regulatory and safety standards for cars, medicines, food and industrial products, and make regulatory changes to give US firms easier market access.

These agreements also mandate cooperation with the US on export controls, investment screening, critical minerals and supply-chain security, thereby tying their long-term industrial plans to US strategic priorities. As a result, market access was exchanged not for a balanced trade deal, but for closer alignment with US rules.

Malaysia and Cambodia have signed binding agreements that include these obligations, while Thailand and Vietnam, still at the framework stage of negotiations, have committed in principle to such an alignment. Here is a sample of clauses that show how Malaysia and Cambodia ceded sovereign policy space in their deals with the US:

Both countries are required to impose equivalent restrictions on a third country if the US imposes restrictions on goods, services and companies owned or controlled by third-country entities “to address a shared economic or national security concern.”

Both countries have also agreed to not impose bans or quotas on exports of critical minerals or rare-earth magnets to US firms and committed to develop their rare-earths sector in partnership with US firms, assuring the latter extended mining licences and guaranteed supplies.

Malaysia has also agreed to limit its foreign-exchange intervention to combating disorderly or excessively volatile exchange rate movements.

Additionally, most American agreements, including those with other countries in Asia, Latin America and Europe, have commitments to not impose taxes on digital trade with the US. Cambodia’s agreement requires it to “consult with the United States before entering into a new digital-trade agreement with another country that jeopardizes essential US interests.”

Apart from these, various deals signed by countries with the US also embed stiffer provisions related to labour, environmental and governance standards. While India has agreed to cover labour and environmental issues in its trade deal with the UK, the US demands seem disproportionate and thus reflective of an unabashed attempt to dilute the comparative advantage and efficiency of its trade partners through stiff standards.

These are examples of provisions that infringe the economic and strategic autonomy of US partners, constraining their freedom to pursue independent trade, investment and industrial policies.

Let us bear in mind that the starting point of Washington’s asks is its imposition of tariffs that have been challenged within the US. This tool of leverage would significantly weaken if the US Supreme Court sounds a death-knell for these barriers. Negotiations with the US should keep this in view.

These are the authors’ personal views.

The authors are, respectively, partner, Clarus Law Associates and a Mumbai-based economist.