President Donald Trump is being welcomed by cheering thousands to Indian Prime Minister Narendra Modi's hometown, Ahmedabad, as I write this. In front of a throng of 110,000 people, India is wishing "Namaste Trump" as a counterpart to the 50,000-strong "Howdy Modi" rally in Houston that the U.S. president hosted in October.
Trump is also inaugurating the world's largest cricket venue, Motera Stadium. It's an event designed to boost the domestic popularity of Trump and Modi, both populist crowd pleasers. Trump and Modi are celebrating the political unity of their two nations, which value each other as a counterbalance to China's rising influence. How close Trump comes on trade with Modi, a man he is today calling his "close friend," remains to be seen.
Reigniting stalled trade talks is on the menu during their gala dinner on Tuesday. Trump said on Monday that India and the United States are in the early stages of an "incredible" trade deal that would be "good or even great" for both nations, which, at this stage, doesn't sound that great. Trump also praised Modi as a "very tough negotiator." High praise indeed.
India was one of the first nations targeted by the Trump administration. The United States slapped tariffs of 25% on Indian steel and 10% on aluminum in March 2018, the same time it began attacking China. India, in response, filed a complaint with the World Trade Organization, and raised its import duties on U.S. produce such as almonds and walnuts, as well as medical devices. The tit-for-tat culminated in June, when the United States removed India from its list of preferred trading partners.
India has gotten off lightly compared with China -- if China is at "trade war," it's a "trade skirmish" with India. U.S. tariffs on India have risen from 3.0% to 3.9% overall, according to the Peterson Institute, whereas they rose from 3.1% to 18.3% in China.
The Peterson Institute notes that India has been highly protectionist of many industries, and a "challenging trading partner for the United States" for many years. At best it has been a "begrudging participant" in WTO open-market initiatives, and at worst a "full-scale obstructionist." Successive U.S. administrations achieved limited success prying open Indian markets with trade concessions. So Trump has gone on the offensive instead.
Nevertheless, only US$7 billion, or 14% of Indian exports, are affected by the U.S. actions. That's in large part because Trump needs Modi and India, as geopolitical allies. Indeed, under Trump's watch, Asia has been rebranded as the "Indo-Pacific region," stretching from Indian waters right up to U.S. shores.
Trump is likely to raise with Modi the topic of the "Blue Dot Network." That's a U.S.-led initiative already backed by Australia and Japan to approve infrastructure projects that adhere to international standards. A key part of the Blue Dot plan is to vet financing, to make sure the loans behind big-ticket projects are not "predatory." That's a nod to the detractors of China's Belt and Road initiative, who claim that funding all too often ends up a debt trap.
Trump has also been a personal backer of India. There are more Trump-branded projects in India than anywhere outside the United States, with six residential towers of million-dollar apartments in four locations. Those projects are now experiencing a dramatic slowdown in sales, as The New York Times explains.
Still, the president continued negotiations on those projects even after he got elected. And he dispatched Donald Trump Jr. to help drum up sales, with events promising drinks or dinner with the president's son.
Although India's 1.3 billion population runs neck and neck with China, its US$2.6 trillion economy is a far cry from China's US$14.2 trillion engine. India's economy is also experiencing a sharp slowdown.
Growth ground from 7.4% in 2018 to 4.9% in 2019, according to Oxford Economics, and may recover slightly to 5.5% in 2020. Although that's still a heady rate by developed-nation standards, emerging markets need outsize growth to accommodate their rapid progress from rural to urban, farming to industry. India's jobless rate rose to a record 8.2% last August, and still stands at 7.2% in 2020.
It's been a weak earnings season that's ending in India. Net sales were down 3.7% in the December quarter, year on year, according to aggregate figures from Nomura. Earnings fell 1.5% to a multi-quarter low. The Nifty 50 stocks -- Indian large caps -- fared better with 9% earnings growth. But that outcome still missed estimates, and analysts have cut 2021 and 2022 profit forecasts.
One plus point for India is that it is probably Asia's least-vulnerable economy in terms of coronavirus shock. Its manufacturing depends domestically for its parts, and isn't all that exposed to China's supply chain. China accounts for only 2.7% of visitors to India, and only 5.3% of India's exports. China does account for 14.2% of imports into India, mainly electrical machinery, plastics and chemicals such as fertilizers. Still, some Indian businesses should actually stand to gain from the lack of Chinese competition, and India as a whole benefits from lower commodity prices.
There may be some one-off deals announced as part of Trump's two-day trip. It's likely India will sign off on a US$2.6 billion purchase of 24 Lockheed Martin LMT helicopters for the Indian Navy. In the long run, though, we'll be looking to see what comes of those early-stage trade deal talks.
India has given Trump a welcome worthy of cricket's biggest stars. How will he respond?