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US-India Strategic and Commercial Convergence

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US-India Strategic and Commercial Convergence

The two sides are looking to make the American and Indian semiconductor industries complementary rather than competitive.

US-India Strategic and Commercial Convergence

U.S. Secretary of Commerce Gina Raimondo with Indian Prime Minister Narendra Modi in New Delhi, India, March 14, 2023

Credit: Twitter/Secretary Gina Raimondo

U.S. Secretary of Commerce Gina Raimondo’s recent trip to New Delhi shows the close relationship between U.S.-India strategic and commercial interests. Secretary Raimondo began her visit by meeting with Minister of External Affairs S. Jaishankar and National Security Advisor Ajit Doval and closed by meeting with Prime Minister Narendra Modi. In between, Raimondo and Commerce and Industry Minister Piyush Goyal convened a much-delayed meeting of the U.S.-India Commercial Dialogue. But even that meeting was focused on a product of vital strategic importance to the U.S. and India in their competition with China –  semiconductors.

Traditional trade matters were largely ignored or left to a forum of private sector CEOs.

The main topic of Raimondo’s interactions with Jaishankar, Doval, and Modi was the Strategic Trade Dialogue. The parameters of this so-called “new” dialogue are not clear, and it is actually not new at all. Rather, it follows on a long history of attempts to address Indian complaints that India is being denied access to the most advanced U.S. defense-relevant technologies. The most recent “new” attempt to address this issue was the initiative on Critical and Emerging Technologies (iCET) announced by President Biden and Prime Minister Modi in May 2022.

However, addressing this perceived discrimination against India has a long history stretching back through the Defense Technology and Trade Initiative, the Next Steps in Strategic Partnership, and several U.S. administrations.

What is “new” about this Strategic Trade Dialogue is that it will be headed by the foreign secretary from the Ministry of External Affairs of India and the under secretary, Bureau of Industry and Security in the U.S. Department of Commerce. This is a different and more relevant bureaucratic configuration for such discussions. However, since the issues go to the very heart of the U.S. and India strategic and economic relationship, it is doubtful that resolution of the export control issues will occur without the direct participation of the highest U.S. and Indian officials. This, in turn, will depend on the continued building of strategic trust between the U.S. and India not just on defense against China, but also on the thorny issues of Russia and nuclear and missile technologies.

Raimondo and Goyal signed a U.S.-India Memorandum of Understanding on Semiconductor Supply Chain and Innovation, and it was also a topic of discussion between Raimondo and Modi. Although the text of this MOU was not immediately made available to the public, it is apparently an attempt to resolve the two countries’ conflicting commercial and strategic goals in relation to semiconductors.

Both the U.S. and India are embarked on nationalistic stimulus programs for the manufacture of chips within their own borders. The U.S. has its CHIPS and Science Act under which the White House brags that over $52 billion will be invested by the government directly and another $150 billion will be invested by the private sector. India has its India Semiconductor Mission (ISM) with an announced outlay of the rupee equivalent of about $9 billion and a wide array of tax incentives.

On the face of it, these U.S. and Indian subsidy schemes are competitive, with the size of the U.S. incentives likely to overwhelm the Indian efforts. On the other hand, both the U.S. and India have strong interests in seeing that the foreign direct investment in the China-based semiconductor industry be moved from China to friendlier precincts, presumably India.

The MOU on Semiconductor Supply Chain and Innovation Partnership could provide a mechanism for limiting competition between U.S. and Indian semiconductor incentive programs and, at the same time, accommodate the movement of semiconductor investments from China to India. This is a tall order indeed. The theory behind the MOU seems to be that this can be done by slicing and dicing the chip design and production process so that the U.S. and India concentrate on different parts of the process, thus making the U.S. and Indian semiconductor industries complementary rather than competitive. Given the two countries’ historical inability to resolve basic trade disputes at a governmental level, this degree of government-to-government cooperation on intervention seems unlikely at best.

The good news is that the U.S. and Indian private commercial sectors seem to have an ability to resolve difficult trade challenges. As noted in the Joint Statement of the Commercial Dialogue, “bilateral goods and services trade has almost doubled since 2014, exceeding $191 billion in 2022.” The United States regained its position as India’s largest trading partner in 2022, and India is now the United States’ eighth largest trading partner. Of course, these data pale in comparison to the U.S.-China trade of $690 billion in goods alone and China’s position as the United States’ largest trading partner.

The U.S.-India CEO Forum met at the same time as the Commercial Dialogue, but the governments seemed to take little notice of the essential need to incorporate the benefits of public-private partnership in solving difficult trade issues. The Joint Statement merely noted that Raimondo and Goyal “shared their strategic priorities for the bilateral relationship with CEO Forum members” and “both governments are working to examine the CEO recommendations for appropriate action….” Similarly, the issue of India joining the trade pillar of the Biden Administration’s flagship economic cooperation initiative, the Indo-Pacific Economic Framework for Prosperity (IPEF), was conveniently swept under the rug. When asked about the issue in press briefing, Raimondo said simply, “That did not come up today in discussions.”

In summary, the fact that the U.S.-India Commercial Dialogue and the CEO Forum were held at all is encouraging. This is now the third year of the Biden Administration. For 2023 to have passed without meetings would have been harmful. The many high-level interactions of Secretary of Commerce Raimondo show how U.S. and India strategic and commercial relations are inter-related. In fact, strategic and commercial issues are parts of the same U.S.-India reality and should be treated as such. Raimondo’s meetings also demonstrate the high level of goodwill and importance both sides attach to the U.S.-India relationship. The strategic/commercial issues that challenge the relationship indicate the need to continue to build the trust that will make the U.S.-India partnership as strong as it should be.