US-India Relations: Forging a Stronger Strategic Partnership through Technology and Trade

Advancements in the bilateral relations between the world’s largest and fifth-largest economies have been shaping the global geopolitical landscape. The state visit to Washington by India’s Prime Minister Narendra Modi in June 2023 marked the beginning of a new and more integrated phase of US-India cooperation. Both parties commenced this new leg of cooperation with high expectations, strengthening all facets of their relationship, including their military and economic alignment, with a particular focus on technology and defence. The joint statement released by the US and India after concluding bilateral talks covers a wide range of topics, especially what they refer to as “important technology areas”.

The recent state visit reemphasised technology as the new driver of US-India diplomacy, from what was previously unidirectional in areas of defence cooperation. The countries envisaged the transition from defence to technology in the months before PM Modi’s state visit, with the announcement of the U.S.-India initiative on Critical and Emerging Technology (iCET) in May 2022. In January 2023, both countries announced the US-India strategic trade dialogue as a means to implement the iCET.[1] Key takeaways from the visit also highlight the role of trade in strengthening the US-India partnership. India’s growing significance, not only in global supply chains but also as a trade partner for the US, is becoming increasingly apparent.

India’s growing significance in US trade and investment

The trade and investment partnership between the US and India is a global growth engine, with bilateral trade exceeding US$ 191 billion in 2022, nearly doubling in comparison to 2014.[2] To underpin both countries’ significance in each other’s trade, the US and India decided to settle six disputes in front of the World Trade Organisation’s (WTO) Dispute Settlement Body at a recent round of discussions. India also agreed to eliminate retaliatory duties on specific American products, which had been imposed in response to US Section 232 national security measures on Indian steel and aluminium products.[3] During the recent visit, both nations also expressed interest in reconvening the India-US Trade Policy Forum before the end of 2023 to strengthen the bilateral trade relationship by addressing trade concerns and identifying new areas for engagement. India expressed interest in regaining its status under the United States Generalized System of Preferences programme, which could be considered in relation to eligibility criteria set by the United States Congress.[4]

India was the 20th largest recipient of US investments in 2021, with the value of investments reaching US$ 45.5 billion. These were also the highest levels of US outward investments in India in the past two decades.[5] In 2021, the US’s total direct[6] position with the world was US$ 6.5 trillion.[7] On the other hand, for India, the US was the second major source of Foreign Direct Investment (FDI) after Singapore.

Figure 1: Foreign direct investment position of the US  in India from 2000 to 2021(in billion US dollars, on a historical-cost basis)

Source: Statista (2023)

US-India Strategic Trade and Investment Partnership

Both countries are focussing on expanding trade and investment cooperation through resilient supply chains. The leaders of both nations reiterated the importance of the resumption of the US-India Commercial Dialogue and CEO Forum. Both US and India counterparts urged their respective industries to act on recommendations for greater engagement and technical cooperation in order to build resilient supply chains for emerging technologies, clean energy technologies, and pharmaceuticals; promote an innovative digital economy; lower trade and investment barriers; harmonise standards and regulations; and work towards skilling our workforces. President Biden and PM Modi further emphasised the need for the US Treasury Department and the Indian Ministry of Finance to continue their active engagement in the Economic and Financial Partnership dialogue.[8]

Both nations will reap reciprocal benefits through cooperation in bilateral trade. Deepening cooperation will also enable India to strengthen its domestic skills in rapidly expanding industries such as artificial intelligence and health care. On the other hand, with the US trade war with China on microchips (see IEC’s CEO insights from October 2022 on US Trade Restrictions on the Semiconductor Industry), India is positioning itself to become a more significant economic player.[9] To that end, the US should pursue India for stronger commitments to open its markets to foreign competition and lower regulatory barriers for doing business in India. This will have a greater impact on supply chain resilience and long-term trade resilience. For example, the US could work with India to support the integration of the Investment Facilitation for Development, recently concluded at the WTO, into the country’s policy agenda.[10]

The Indian government has been looking to strengthen its semiconductor industry with a means to emerge as a substitute for sourcing from China. The Indian government approved a US$10 billion programme to develop the country’s semiconductor industry in December 2021. India has also enacted new policies to strengthen its indigenous semiconductor industry, with the Semiconductor Fab Ecosystem Programme released in 2021. The country is also reaching out to like-minded allies like Taiwan for assistance in financing and constructing the essential infrastructure.[11] With the US as the global leader in technology and both countries concerned about China’s growing influence in the semiconductor industry, the India-US partnership on semiconductors appears to follow a natural path towards driving national industries in both countries.

The India-US MoU on Semiconductor Supply Chain and Innovation Partnership will promote co-development and production.[12] PM Modi’s recent state visit reemphasised that the cooperation between both nations will concentrate on co-development and co-production opportunities across different advanced technological sectors, including semiconductor technology, 5G and 6G telecom networks, quantum, and high-end computing.[13]

What this means for businesses?

The strengthening of US-India bilateral relations, particularly in the areas of technological cooperation and trade, can have significant implications for the private sector in both countries. Examples of this include:

  • Increased Market Access: Closer ties between the US and India can lead to improved market access for businesses in both countries. As trade barriers are reduced and regulatory cooperation is enhanced, the private sector can benefit from expanded opportunities to utilise each other’s markets.
  • Enhanced Technology Transfer: Technological cooperation between the US and India would involve sharing knowledge, expertise, and advanced technologies. This will allow businesses to access cutting-edge innovations and potentially improve their competitiveness in the global market. Moreover, innovation ecosystems will be developed to support startups in both countries.
  • Joint Ventures and Collaborations: With stronger bilateral relations, companies in the US and India may be more inclined to form joint ventures or collaborate on projects. Such partnerships can leverage the strengths of each country’s private sector and facilitate the exchange of resources, skills, and market knowledge.
  • Investment Opportunities: As bilateral relations strengthen, there is a likelihood of increased foreign direct investment (FDI) between the US and India. The private sector in both countries may witness a surge in investment inflows, which can foster economic growth, create jobs, and boost business development.
  • Access to Skilled Talent: Technological cooperation often involves collaboration on research and development initiatives. This can lead to a better exchange of talent and expertise, providing businesses in both countries with access to a more skilled and diverse workforce.

International Economics Consulting Ltd (IEC) works on WTO negotiations by supporting a group of 78 countries in their e-commerce negotiations. It also works with G7 and G20 countries on free trade negotiations covering digital trade and e-commerce in multilateral and regional negotiations. It is currently engaged in advising on e-payments, blockchain technologies, 3D printing and single digital markets globally. IEC can support your businesses, associations and chambers of commerce to understand what the existing e-commerce measures mean for you, draft and submit position papers that defend your interests. IEC can also support your business through impact assessments and regulatory reviews.

CEO Insights is a monthly publication of International Economics Consulting Group (IEC). IEC is an independent consultancy group working with governments, international development partners, and the private sector to navigate trade opportunities and promote sustainable growth and development.  Learn more about the services that IEC provides here.

Paul Baker is the founder and chairman of International Economics Consulting Group (IEC), a globally recognised consulting firm. Nominated for seven consecutive years in Who’s Who Leading Trade Economists, he has advised several G7, G20 and G90 governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. Paul is an expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s Trade Tech Working Group and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence tools. He is also a member of the UK’s All Party Parliamentary Group on Trade and Investment, and a regular contributor to the UK Parliament’s Trade Select Committee, and UN panels on trade impact analysis. 

 

References:

[1] CFR (2023). U.S.-India Relations: 1947-2023. Council on Foreign Relations. Available from: https://www.cfr.org/timeline/us-india-relations

[2] US Department of State (2023). Secretary Antony J. Blinken at a U.S.-India Strategic Partnership Forum Event. US Government. Available from: https://www.state.gov/secretary-antony-j-blinken-at-a-u-s-india-strategic-partnership-forum-event/

[3] USTR (2023). United States Announces Major Resolution on Key Trade Issues with India. Office of the United States Trade Representative. June 22. Available from: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2023/june/united-states-announces-major-resolution-key-trade-issues-india#:~:text=India%20also%20agreed%20to%20remove,boric%20acid%2C%20and%20diagnostic%20reagents.

[4] The White House (2023). Joint Statement from the United States and India. June 22. Available from: https://www.whitehouse.gov/briefing-room/statements-releases/2023/06/22/joint-statement-from-the-united-states-and-india/

[5] Statista (2023). Countries with highest direct investment position received from the United States in 2021. July 6. Available from: https://www.statista.com/statistics/188806/top-15-countries-for-united-states-direct-investments/

[6] U.S. direct investment abroad is defined as a U.S. investor owning at least 10% of a foreign company. The direct investor is referred to as a U.S. parent, and the US-owned foreign business is referred to as a foreign affiliate. Because international transactions statistics cover foreign affiliates’ transactions with their U.S. parents, they focus on the U.S. parent’s share, or interest, in its affiliates rather than the affiliates’ overall size or level of operations.

[7] Statista (2023). Foreign direct investment position of the United States in India from 2000 to 2021.  July 6. Available from: https://www.statista.com/statistics/188633/united-states-direct-investments-in-india-since-2000/#:~:text=U.S.%20annual%20FDI%20in%20India%202000%2D2021&text=In%202021%2C%20the%20U.S.%20investments,U.S.%20dollars%20in%20that%20year.

[8] The White House (2023). Ibid.

[9] Taneja, H. & Zakaria, F. (2023).  The U.S.–India Relationship Is Key to the Future of Tech. Harvard Business Review. April 17. Available from: https://hbr.org/2023/04/the-u-s-india-relationship-is-key-to-the-future-of-tech

[10] WTO (2023). Investment Facilitation for Development. World Trade Organisation. Available from: https://www.wto.org/english/tratop_e/invfac_public_e/invfac_e.htm 

[11] Ghosh, S. (2022). India-US Semiconductor Cooperation. The Diplomat. Available form: https://thediplomat.com/2022/12/india-us-semiconductor-cooperation/

[12] USDC (2023). Secretary Raimondo Announces U.S.-India Semiconductor Supply Chain and Innovation Partnership MOU in New Delhi. U.S. Department of Commerce. March 15. Available from:https://www.commerce.gov/news/blog/2023/03/secretary-raimondo-announces-us-india-semiconductor-supply-chain-and-innovation

[13] TDG (2023). India-US summit bolsters technology and security cooperation. The daily Guardian. Available from: https://thedailyguardian.com/india-us-summit-bolsters-technology-and-security-cooperation/

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