Moon Goes to Washington (Remembering the Hungnam Evacuation - Code Name Christmas Cargo)

Economist

Richard Iley

Macroeconomics

Narendra Modi's state visit to the US this week necessarily marks a new chapter in India-US relations. Relations between the two countries had improved markedly in recently years, helped by a 'bromance' between Prime Minister Modi and then President Obama. The Trumpian new paradigm of 'America First' with a heavy emphasis on so-called fear trade, intense scrutiny on bilateral trade deficits, commercial transactions and an end to perceived free-riding on US defence spending should, in theory, serve India. There is no official alliance between the two countries and, hence, no formal defence commitment that could be bemoaned by President Trump as unfair and expensive. The US does run a trade deficit with India of c.USD30 billion but this is around 10x smaller than its trade shortfall with China. Commercial deals offer the best chance to cement and ideally build on the gains between the two countries in recent years. The recently announced tie-up between Lockheed Martin and Tata to jointly manufacture F-16 fighter jets in India looks to be a 'win-win' and should lay the foundation for a successful summit. In terms of personal chemistry, Trump and Modi will struggle to re-create that which formed between Modi and Obama. Still, there should be plenty of common ground and President Trump has often expressed admiration for Modi, even using Hindi when adapting one his campaign slogans last year. There are number of contentious issues that need to be discussed over the next few days that could, in the worst case, re-sour the Indo-US relationship. Potential changes to the H-1B visa regime are probably the biggest hot-button issue. Expect India to raise the subject and emphasise that any changes would be 'lose-lose' for both countries with US tech companies hurt by any changes as much as Indian firms. The US's withdrawal from the Paris climate accord and attitude to climate change is another obvious source of tension. With little common ground between the two leaders, discussions on this contentious topic are likely to be left to the margins of the summit and media questions batted away. An increasingly assertive Pakistan and its burgeoning relationship with China is another hot-button topic. India would like support for a harder stance against Pakistan and implicitly China. The US's current focus on North Korea means it is unlikely to offer anything concrete to India. More generally, the desire not be seen as forming an 'anti-China' alliance will also probably limit further progress on military co-operation.

Narendra Modi's state visit to the US this week necessarily marks a new chapter in India-US relations. Relations between the two countries had improved markedly in recently years, helped by a 'bromance' between Prime Minister Modi and then President Obama. The Trumpian new paradigm of 'America First' with a heavy emphasis on so-called fear trade, intense scrutiny on bilateral trade deficits, commercial transactions and an end to perceived free-riding on US defence spending should, in theory, serve India. There is no official alliance between the two countries and, hence, no formal defence commitment that could be bemoaned by President Trump as unfair and expensive. The US does run a trade deficit with India of c.USD30 billion but this is around 10x smaller than its trade shortfall with China. Commercial deals offer the best chance to cement and ideally build on the gains between the two countries in recent years. The recently announced tie-up between Lockheed Martin and Tata to jointly manufacture F-16 fighter jets in India looks to be a 'win-win' and should lay the foundation for a successful summit. In terms of personal chemistry, Trump and Modi will struggle to re-create that which formed between Modi and Obama. Still, there should be plenty of common ground and President Trump has often expressed admiration for Modi, even using Hindi when adapting one his campaign slogans last year. There are number of contentious issues that need to be discussed over the next few days that could, in the worst case, re-sour the Indo-US relationship. Potential changes to the H-1B visa regime are probably the biggest hot-button issue. Expect India to raise the subject and emphasise that any changes would be 'lose-lose' for both countries with US tech companies hurt by any changes as much as Indian firms. The US's withdrawal from the Paris climate accord and attitude to climate change is another obvious source of tension. With little common ground between the two leaders, discussions on this contentious topic are likely to be left to the margins of the summit and media questions batted away. An increasingly assertive Pakistan and its burgeoning relationship with China is another hot-button topic. India would like support for a harder stance against Pakistan and implicitly China. The US's current focus on North Korea means it is unlikely to offer anything concrete to India. More generally, the desire not be seen as forming an 'anti-China' alliance will also probably limit further progress on military co-operation. 

India: Mr. Modi Goes To Washington