Tariffs on Chinese goods were further raised, and Huawei severed from US supply chains, sharpening the trade war.
Many strategic experts are asking about the possible foreign policy thrust of Prime Minister Narendra Modi’s second term. What appears conspicuous is the choice of technocrats to handle two critical elements: diplomacy and trade. The choice of former foreign secretary Subrahmanyam Jaishankar as external affairs minister and Hardeep Singh Puri, a more senior former diplomat, as a minister of state in the commerce ministry, besides his substantive charge in housing, indicates Mr Modi, in his new avatar, prefers expertise over political gravitas.
Also significant was the choice of Bhutan by Mr Jaishankar and the Maldives and Sri Lanka by Mr Modi as neighbourhood nations for early visits. Earlier, seven leaders from the Bimstec countries attended Mr Modi’s May 30 swearing-in. This showed India’s desire to consolidate its strategic footprint in India’s continental and maritime neighbourhood.
Three factors dominated Mr Modi’s first term — the rise of an aggressive China, destabilising of Islamic nations by non-state actors and the global Islamic radicalisation and Pakistani sponsorship of anti-India terrorism. No Lok Sabha election has been so dominated by Pakistan-centred jingoism as the last one. The Pulwama attack and the IAF counter-strike on a Jaish-e-Mohammed training facility at Balakot became the leitmotif of the BJP campaign to distract from the economic slowdown, rural and agricultural distress and tardy jobs growth. Arvind Subramanian, the former chief economic adviser to the government, now publicly argues that GDP growth has been overestimated from 2011-12 to 2016-17.
Now a fourth and more destabilising factor is what the Economist calls America’s “new economic arsenal to assert its power”. Tariffs on Chinese goods were further raised, and Huawei severed from US supply chains, sharpening the trade war. Iran faces an almost total oil export embargo, putting European and Asian powers in a bind. The trade preferences given to India stood withdrawn immediately after the Modi swearing-in, almost as if the US merely avoided raining on the BJP’s parade during the polls. Mexico was threatened with new duties, despite earlier successfully renegotiating the North America Free Trade Agreement (Nafta), to seek action on illegal immigration into the United States. Trade issues were being mixed up with national security matters. Russian military exports are being targeted to seek compliance with a slew of issues from the Ukraine to Syria, Iran, etc. Both Turkey and India, who plan to buy the Russian defensive missile system S-400, face the threat of US sanctions.
Two summits loom as the Modi government analyses this more complex scenario. On Thursday, the Prime Minister will fly to Bishkek in Kyrgystan to attend the Shanghai Cooperation Organisation (SCO) summit, but contrary to earlier indications he will detour via Oman and Iran to reach Bishkek, completely avoiding Pakistani airspace. Ironically, despite the Pakistan-bashing during the poll campaign, the Indian government had earlier sought permission to use Pakistani airspace — which is closed to westbound flights from India — for the PM’s special aircraft.
At SCO, China, which largely drives its agenda, has largely won over adherents to its Belt and Road Initiative. Only India and the US have held out. Despite America’s urging, as the Economist notes, of America’s 35 European and Asian military allies, only three of them have agreed to boycott Huawei. Even Britain has been flirting with permitting its 5G-based technology. At the SCO, China may push for alternative global payments, cyber and telecommunication technology infrastructures. India’s choices will get even more restricted amidst this neo-bipolar Sino-US contestation.
Some weeks later, Mr Modi will attend the G-20 summit at Osaka. The earlier summit at Buenos Aires on November 30, 2018 had attempted to find a consensus on “fair and sustainable” development. The Sino-US trade war was under way, but expected to abate once President Donald Trump got a face-saving deal. Today that seems much less likely. US trade representative Robert Lighthizer is a battle-hardened lawyer and an inveterate China sceptic. He seeks an agreement-based commitment from China to open its economy, moderate state-led capitalism, stop “technology theft” and reel back protectionism. The Chinese prefer executive action limited to the increased import of US goods, but not enforceable legal commitments. The US facilitated China’s admission to the WTO in 2001 when Chinese cooperation at the UN Security Council was necessary for US operations in Afghanistan and Iraq. But Mr Trump now views it through the prism of economic nationalism, that negates the old reading of China as a benign global trader. Following higher US tariffs on Chinese goods, while Chinese exports to US have dipped by 13.9 per cent, those of India rose by 15.2 per cent, South Korea’s by 18.4 per cent and Vietnam’s by 40.2 per cent. But India is hampered now by the US withdrawal of GSP and lack of infrastructure and systemic support for filling the market vacuum.
But diplomatic moves are afoot to counter this disruptive Trumpian approach to globalisation. Chinese President Xi Jinping and Russian President Vladimir Putin held a summit while the Western leaders gathered for the D-Day commemoration in France. Their trade, totalling over $100 billion, may move out of dollar usage. Japanese PM Shinzo Abe made a historic trip to Iran, a quarter century after a predecessor, apparently with Mr Trump’s approval. Iran is threatening to abandon the nuclear deal if it is not insulated from US sanctions. Separately, the German foreign minister was also in Iran for similar reasons. Abu Dhabi’s Crown Prince was in Germany to apply reverse pressure.
The Sino-US contest has, meanwhile, escalated. US national security adviser Richard Bolton met a Taiwanese minister, after years of avoiding such contact. The Pentagon published its Indo-Pacific strategy on June 1 advocating a “free and open Indo-Pacific” and referring to Taiwan as a “nation”. Earlier at Singapore’s Shangri-La Dialogue, the US and Chinese defence ministers exchanged strong words. Massive public protests in Hong Kong over the extradition law and earlier Tiananmen’s 30th anniversary are raising Chinese hackles over a Western conspiracy. India’s challenge is to maintain balance between the competitive and cooperative parts of Sino-Indian ties and retain strategic independence while dodging America’s “weapons of mass disruption”, as the Economist puts it. Subsets of these to the west would be the Iranian standoff with the US-Saudis-Emiratis and Pakistan’s India paranoia and Afghan fixation. To the east, India must energise Bimstec, tap into Asean’s global supply chains and push back and engage China. India is entering an unsettled international environment, laden with both opportunity and risk.