Envisioning an India-US FTA

There is a window of opportunity to deepen the relationship

- AJAY SHAH

How will the Trump presidency rock the global economy? Many kinds of turbulence will arise in international trade. India will face some unintended consequences of actions initiated by the major powers.

India is a small player in global merchandise trade and does not have the leverage to materially shape the global story. As an example, exports of Indian goods in 2023 were $432 billion, with a nominal growth rate of 3.2 percent over the last decade (a nominal doubling every 22 years). For comparison, Vietnam, with a population that's 7 percent of India's, was at $354 billion in 2023, with a decadal nominal growth rate of 10.4 percent (a nominal doubling every seven years).

At the recent Emerging Markets Conference (https://bit.ly/EMC-12-2024), Daniel Rothschild offered an important idea. He said that conditions were good for a strong Indo-US free-trade agreement (FTA). He argued that an Indo-United States FTA would be supported within the United States (US) by three important groups:

1. The people in the US who are imbued with free trade as a philosophy are concerned about the growing impediments to global trade. An Indo-US FTA would be supported by them as a way to keep gains from trade alive, drawing on the knowledge that goes all the way back to David Ricardo that unilateral liberalization of trade by each country is good for their self-interest. Particularly if America is going to restrict trade with other countries, the highway with India becomes more valuable.

2. Big business interests in the US stand to get hurt by protectionist moves in the US and counter-moves by other countries. For them, keeping one channel open for increasing the size of overseas activity, in the form of an FTA with India, would be welcomed.