NEW DELHI — The United States is putting India at the center of its ambition to free global supply chains from the clutches of US adversaries, as tensions with China remain high and the Russian war in Ukraine is turning international trade upside down.
Treasury Secretary Janet L. Yellen, the chief economic diplomat of the Biden administration, delivered that message in person on Friday during a visit to the Indian capital at a time of intense global economic uncertainty. Rising food and energy prices from the Russian war and heightened concerns about America’s reliance on Chinese products have prompted the United States to attempt to reform the global economic order so that allies depend on each other for the goods and services they need. power their economies.
India is often in the midst of geopolitical turmoil between the United States, China and Russia. But as the Biden administration promotes what it calls “friend-shoring,” it makes it clear that it wants India to be in America’s orbit of economic allies.
After touring Microsoft’s research and development campus on the outskirts of New Delhi on Friday, Ms. Yellen outlined the case for moving away from countries that could destabilize US supply chains and manufacturers that show little respect for human life. It was clear that China and Russia were top of mind.
“The United States is taking an approach called ‘friend-shoring’ to diversify away from countries that pose geopolitical and security risks to our supply chain,” said Ms Yellen. “To do this, we are proactively deepening economic integration with trusted trading partners such as India.”
Microsoft’s growing business in India is an example of the integration the United States wants to see. Ms Yellen noted that the US Development Finance Agency provided a US solar manufacturer with $500 million in financing to build a facility in the South Indian state of Tamil Nadu. That is part of the government’s efforts to help the global solar industry move away from China, which, according to Ms. Yellen, produced solar panels using forced labor in the Xinjiang region. And she highlighted Apple’s recent move to move iPhone production from China to India.
“We are also addressing our reliance on manufacturers whose approaches clash with our human rights values,” added Ms Yellen, who traveled to India before attending the Group of 20 Leaders Summit in Indonesia next week.
The importance of America’s relationship with India has grown in recent months. The country is a rare ally that maintains strong diplomatic ties with Russia, which has become its main oil supplier, and exerts influence with President Vladimir V. Putin. At the same time, India’s large English-speaking population has the potential to make it an international manufacturing center for American companies. The United States is generally India’s largest trading partner.
But the trading relationship has not always been easy. US officials say their Indian counterparts are among the toughest negotiators, known for their adherence to protectionist impulses at international meetings. And given the challenges of doing business in India, including a lack of infrastructure and red tape, it’s not clear how many manufacturers will make the leap from China.
Sadanand Dhume, a senior fellow at the American Enterprise Institute, said India faced several challenges in becoming a hub for international manufacturing, including government reforms that hadn’t yet made it “noticeable” into a more attractive destination for businesses. And compared to China, India’s domestic consumer market is smaller and therefore less attractive to companies producing there.
India emerged as a major obstacle as members of the World Trade Organization tried to reach a series of agreements at a meeting this year. It has also refused to participate in the negotiations on the trade pillar of the Indo-Pacific Economic Forum, an Asia-Pacific economic pact proposed by the Biden administration.
In recent months, India’s long economic relationship with Russia has become increasingly problematic for the United States. India is the world’s largest buyer of Russian ammunition – a relationship that is hard to break, especially given India’s tensions with neighboring China and Pakistan. India has refused to condemn Russia’s invasion of Ukraine. And since the beginning of the war, it has become a major buyer of Russian oil, which it can buy at a discount in international markets.
India’s imports from Russia have risen 430 percent since the war in Ukraine began in February, as tankers with Russian crude oil poured into Indian ports. India, which imports a significant amount of energy and is the world’s second most populous country, has said it focuses only on buying oil at the lowest price.
Eswar Prasad, a trade policy officer at Cornell University who speaks with both US and Indian officials, said that while India wanted to forge a stronger economic relationship with the United States, it was unlikely to distance itself from Russia.
“India has very deep-seated economic interests in maintaining a reliable and relatively cheap oil supply from Russia,” said Mr Prasad, a former official at the International Monetary Fund.
The US embrace of India comes as the United States and its European allies rush to finalize the terms of a plan to curb the price of Russian oil. The initiative must be implemented by December 5, when a European embargo and ban on maritime insurance will come into effect, potentially disrupting the flow of Russian oil around the world.
The price cap would essentially be an exception to Western sanctions, allowing Russian oil to be sold and shipped as long as it remains below a certain price, a level yet to be determined.
India has been hesitant about the proposal, but Treasury officials say the United States is not trying to pressure the country to formally join the coalition. Instead, they hope India will use the price cap as leverage to negotiate lower prices with Russia, depriving Mr Putin of revenue but keeping the country’s oil flowing.
However, Ms Yellen emphasized in her speech that relying on Russian oil carries risks.
“Russia has long presented itself as a reliable energy partner,” said Ms Yellen. “But for most of this year, Putin has been arming Russia’s natural gas supply against the people of Europe.
The Treasury Secretary added: “It is an example of how malicious actors can use their market positions to try to gain geopolitical influence or disrupt trade for their own gain.”
Mindful of India’s economic ties to Russia, the United States has focused on other areas where it can cooperate. India has thriving agricultural and service sectors, but the United States believes it has significant scope to expand its production capacity.
Atul Keshap, the president of the US-India Business Council, said there are many opportunities for economic partnership between the United States and India, especially in establishing secure supply chains for strategic technologies such as semiconductors, electric vehicle batteries, artificial intelligence, quantum computers and drones.
“You look at the headlines, you look at the risks to the supply chain,” said Mr. Keshap. “You look at the uncertainties of the past two or three years, and countries like India have an opportunity.”
But business leaders and trade experts say the US and Indian governments have so far failed to capitalize on those opportunities. Talks about a trade deal with India flourished briefly during the Trump administration, but a range of intractable economic problems – ranging from India’s barriers to US agricultural goods and medical devices to the lack of protection of US intellectual property – have made an agreement difficult.
A US program that cut tariffs from poorer countries, including India, expired in 2020 and there was not enough support in Congress to reintroduce it. At a 2021 trade meeting in New Delhi, the parties made some progress in opening trade for US pork, cherries and alfalfa hay, and Indian mangoes and pomegranates.
A US-India trade policy forum scheduled for Nov. 8 in Washington has been pushed back to give officials more time to achieve more substantial results, a representative of the United States Trade Representative’s office said.
On the sidelines of her meetings on Friday, Ms Yellen told reporters that cutting tariffs is not currently part of talks with India, but the two sides had discussed other “trade facilitation” measures to reduce non-tariff barriers.
According to Prasad, who is also a former IMF official, there is lingering skepticism in India about the sustainability of America’s good intentions in the wake of the tariffs introduced by former President Donald J. Trump.
“There is a layer of concern, if not outright distrust in Delhi,” Mr Prasad said.
Ms. Yellen came to India to show that the United States, despite their differences, can be a reliable partner. On Friday, she also met with Indian Finance Minister Nirmala Sitharaman.
“Our strong trade, investment and people-to-people ties make the bilateral economic and financial relationship a crucial element of that partnership,” said Ms Yellen with Ms Sitharaman by her side.
Ms Sitharaman said the strength of the relationship between the two countries rested on understanding each other’s needs and “respecting the differences”.
Speaking to Indian business leaders at the meeting, Ms Yellen said that major democracies such as India and the United States must stick together in an unstable global economy.
“In a world where supply chain vulnerabilities can come at a high cost, we believe it is important to strengthen our trade ties with India and the multitude of countries that share our approach to economic relations,” she said.
