Preparing for the worst-case scenario with the US

 The other day, US Commerce Secretary Howard Lutnick suggested in a podcast with a Sri Lankan venture capitalist that India lost the possibility of a quick trade deal with the US because Narendra Modi did not call Donald Trump during the time window allotted to him for signing up. 

This may at least be partially true, but it is ridiculous nevertheless. A trade deal, where diverse interests and multiple concerns have to be reconciled, is not like a real estate deal between two people where one party or the other can set a take-it-or-leave-it deadline. A trade deal is signed by two nations (or trading blocs) and not between an individual and a country. 

It is true that the US’s allies have done so, signing up with Trump by agreeing to his absurd conditions. But these deals are unlikely to stand the test of time. For example, the European Union (EU) agreed to buy $750 billion of US energy and invest $600 billion in the US by 2028 - which is just two years away - but how is this possible when EU growth is weak, and its former growth engine, Germany, has been in recession for more than three years? The Ukraine war is also forcing many EU countries to spend more on defence.

Trump is not going to be around forever, and his extraordinary ability to rule by decree rather than the constitution is the result of the temporary paralysis in the US political system. The Democrats are in a minority and can’t call the shots, while the Republicans - who don’t like Trump’s dadagiri one bit - are still debating what damage they will do to themselves by standing up to Trump. It will probably take most of 2026 - till the November mid-term elections possibly shift the balance of power in Congress and the Senate - before it becomes possible for America to rein in Trump. 

For India, this means accepting three things.

First, we must stoically endure Trump and his insults till America itself is done with him at some point later this year, or - in the worst case scenario - by January 2029. That’s three years more before things start improving after good sense begins governing America. But we can’t assume that whoever comes next is somehow going to see India with rose-tinted lenses. India is a rising power, and no superpower likes that.  

Second, mentally India must give up the illusion that America (or any country, including current and past friends) will be broadly on India’s side when it comes to the crunch. They will help when it suits them, and this includes even smaller countries like Israel. The most important illusion we must give up is to assume that the western democracies will help us since they are in an economic and political contest with China. Notice how quickly Trump gave up on confronting China once the latter unveiled its rare earths sanctions. Europe will do the same, if it is pushed to the wall. 

Third, this is the time for hard decisions that will serve us well in the long term, but may cause us a lot of pain in the short term. We cannot have policies that are relevant only if fair weather prevails on the geopolitical front.

This is, therefore, the right time to discuss our vulnerabilities, first with the US (and also China), and start fixing them one by one. 

Consider our most important economic and security vulnerabilities.

We are over-dependent on the US market for goods exports, and even more for software services. We are over-reliant on US tech companies like Google, Amazon, Nvidia, etc. We have to reduce this vulnerability steadily - without rupturing the US relationship altogether - but must, at the same time, be prepared for the US to become viciously anti-India, as it was during the 1971-1991 period. A superpower is most dangerous for everyone, including itself, when it loses confidence in itself, and this is exactly what is happening now. It is not just about Donald Trump. Even under Joe Biden, the fact that the US encouraged a fratricidal war between Ukraine and Russia - a war which made Europe the biggest loser by closing its access to clean and cheap energy - suggests that America is no one’s friend. It is willing to alienate allies just to believe that it is still the boss.

We are over-dependent on US and Russian defence equipment, and the fact that our AMCA (advanced medium combat aircraft) programme is dependent on Lockheed for engines should worry us no end. While there is no need to jeopardise that deal, if it finally delivers, we need to make parallel efforts to become self-reliant in this area. Nor is there any reason to weaken relations with Russia, but till the Ukraine war continues, its ability to deliver on its promises to India must be questioned. It is in our interest to get the war ended as soon as possible, and also promote a rapprochement between Europe and Russia - though the Europeans are currently busy committing hara kiri on this score.

We are far behind on AI (artificial intelligence) and data centres, and also on technology where we own the IPR. Our software giants should be investing not just in labour arbitrage services, but also deep tech and IPR. The government must encourage this shift through tax and other incentives, but the likes of TCS and Infosys should be doing this anyway. They should be distributing less dividends, and investing more in R&D. The same goes for pharma, our other big export business, which depends heavily on generics, on the US market, and on China for importing active pharmaceutical ingredients (APIs). The government is trying to get more of the latter produced in India, but the process is too slow. 

Given American waywardness under Trump, we must focus on trade deals with other countries and blocs. The European Union is one obvious partner to prioritise. But Latin America is another. Ideally, we should be trading more with our south Asian neighbours, but currently both Pakistan and Bangladesh are on an Islamist political trajectory that is destructive of trust and stability. We could engage them to rebuild trust, but without any assumption that they are going to give up their hostility to us any time soon.

To get the hard reforms done internally, we need a less combative political atmosphere and multi-partisan consensus on core issues. You can’t reform agriculture or reduce wasteful freebie culture if our politics is headed for the gutter. We need internal political stability also to ensure that external powers do not find a fertile soil where they can generate internal disturbances and are able to scuttle policies that benefit India. As long as our internal politics is excessively divisive, we can never rule out foreign efforts to engineer regime change.

India does not have much time to get its act together, and the process must not just begin now, but accelerate. The world is not holding its breath. It will not wait for India to reform. 

Trump may be taking America down with him by mindless international bullying, but we won’t be doing ourselves a favour by sitting on our hands and waiting for the storm to blow over.