Modi 2.0: Navigating Differences and Consolidating Gains in India–U.S. Relations

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Modi 2.0: Navigating Differences and Consolidating Gains in India–U.S. Relations

August 5, 2019 About an hour read Download Report
Jeff Smith
Director, Asian Studies Center
Jeff Smith is Director of The Heritage Foundation’s Asian Studies Center.


In April and May 2019, over 600 million Indian citizens cast their ballots in the largest democratic exercise in human history. India’s national elections brought a landslide victory for the ruling Bharatiya Janata Party (BJP) and incumbent Prime Minister Narendra Modi, while dealing another embarrassing blow to the once-dominant Congress Party. During Prime Minister Modi’s first term in office, defense and strategic ties with the U.S. reached new heights and crossed several key milestones. However, new challenges threaten to stall momentum in the relationship, including the Trump Administration’s decision to impose tariffs on Indian exports and revoke tariff-free access to certain Indian goods; new U.S. sanctions targeting Russian defense exports and Iranian oil exports; differences over new Indian policies governing e-commerce and data localization; and the specter of an expansive U.S. Section 301 investigation that could exacerbate existing trade tensions and threaten progress on strategic convergence. Prime Minister Modi’s return to office should herald a bright future for Indo–U.S. relations—if the two sides can manage the trade and sanctions disputes facing them.

Key Takeaways

India–U.S. ties reached new heights during Indian Prime Minister Modi’s first term, cementing India as one of America’s most promising strategic partnerships.

As the India–U.S. partnership matures, they confront new challenges—substantive differences on trade, e-commerce, and U.S. sanctions against Iran and Russia.

President Trump and Prime Minister Modi must take action to address these differences and put bilateral relations back on a positive trajectory.

The transformation of the Indian–U.S. relationship has been one of the great U.S. foreign policy success stories of the past two decades. Estranged democracies during much of the Cold War, India and the United States have, since the turn of the millennium, constructed one of the defining strategic partnerships of the 21st century. Cooperation has not always come easy, or developed as quickly and meaningfully as its advocates hoped, but its geopolitical significance of the evolving partnership is undeniable.

The process was jump-started by a transformative dialogue following India’s nuclear test of 1998, and crossed several critical thresholds since: a civil nuclear deal and 10-year defense partnership agreement inked in 2005 (and renewed in 2015), the beginning of a wave of major U.S. arms sales to India in 2008, and the designation of India as a Major Defense Partner in 2016, to name a few.

Throughout this two-decade courtship, the momentum was sustained by an unusually broad bipartisan consensus favoring stronger ties in both capitals. The relationship reached new heights, however, during the first term of Prime Minister Narendra Modi (2014 to 2019), so it is not surprising that Washington was closely watching the results of India’s national elections this spring.

With the election over, this Backgrounder examines the current state of, and future prospects for, Indian–U.S. relations after the historic victory of Prime Minister Modi and his Bharatiya Janata Party (BJP). Part I explores the BJP’s landslide victory and the challenges facing the Indian government in the years ahead. Part II reviews advances in Indian–U.S. relations during Prime Minister Modi’s first term as well as initiatives undertaken by the Trump Administration to strengthen the partnership.

Part III surveys current and forthcoming challenges in Indian–U.S. relations, including disputes over trade and investment practices, current and potential future U.S. tariffs on Indian goods, and U.S. sanctions on Iranian oil exports and Russian defense exports. Part IV offers policy recommendations for the U.S. government and is followed by a concluding section.

Part I. India Goes to the Polls

From April 11 to May 19, India hosted the largest democratic exercise in human history: More than 600 million citizens cast their ballots in an election that produced a second consecutive landslide win for the BJP and incumbent Prime Minister Modi. Ultimately, it was a victory for Indian democracy: a well-organized, overwhelmingly peaceful vote, setting records for female participation and voter turnout, which reached an enviable 67 percent.

For the second election in a row, the BJP’s vote tally exceeded expectations, making it the first party since 1971 to secure a simple majority in two consecutive elections. The BJP will enjoy 303 seats in the country’s 543-seat parliament, besting its tally from 2014 when it secured 282 seats.REF

The once mighty Congress Party, which ruled India for most of the country’s post-independence history, suffered another embarrassing defeat. It secured 52 seats in parliament, beating its relatively meager 44-seat tally in 2014, but raising major questions about the party’s platform, direction, and leadership.REF To add insult to injury, Congress Party president Rahul Gandhi lost the seat he contested in his family’s stronghold of Amethi to a BJP candidate, though he won a second seat he contested in Kerala. Gandhi later submitted his resignation as the Congress Party president, and the party is now preparingfor a bout of soul-searching that ideally would produce young, dynamic new leaders and ideas to rejuvenate the party.

The likelihood of a BJP victory became clearer in the weeks leading up to the polls, but most observers predicted a far narrower margin. Prime Minister Modi’s government faced no shortage of criticism, not least over his mixed record on economic reforms. Perhaps the sharpest criticism of the prime minister, however, came from domestic and international observers concerned by what they saw as a rising tide of Hindu nationalism that threatened to stoke communal tensions and endanger India’s minorities. Some critics went so far as to portray Modi as a “fascist” and a threat to Indian democracy.REF “India’s Divider in Chief” proclaimed the cover of Time magazine.REF

India has indeed witnessed a pronounced, if not entirely unexpected, surge in Hindu nationalist sentiment in recent years. It has been accompanied by troubling reports of anti-Muslim and, on rarer occasions, anti-Christian sentiments, as well as communal tensions, hate speech, and sporadic bouts of violence. Local leaders and grassroots Hindu nationalist movements clearly feel more empowered in the Modi era, and it is not difficult to imagine scenarios in which they could damage India’s social fabric if more extreme elements were to become empowered.

There is, however, no evidence that these excesses are the product of a campaign directed by the government or the prime minister’s office. Modi has generally urged restraint from his supporters while underscoring the pluralistic nature of Indian society. In his speech following the election, Modi insisted the government would have to “gain trust” of India’s minorities: “[W]e cannot see anyone as an outsider. Those who voted for us are ours. Those who severely oppose us are also ours.”REF

The Modi Touch. Ultimately, the vast majority of Indian voters did not view Modi in the same divisive and dangerous light as his critics. A 2017 Pew survey found that 79 percent of Indians polled reported they are “satisfied with the way democracy is working in India,” the highest in any country polled, while 85 percent “trust the government to do what is right for India.”REF

Nor were communal tensions the foremost concern of most Indian voters; economic development topped the list. While Modi’s record of economic reforms has invited criticism,REF the opposition did not offer a particularly compelling, or dramatically different, economic vision. Perhaps most important, it was very much a personality-driven election and Modi remains extremely popular in India—more than twice as popular as the Congress Party’s Gandhi in some polls, and considerably more popular than the BJP at large. In a country that has grown weary of dynastic politics and corruption scandals, it is hard to overstate the impact of Modi’s image as a humble and incorruptible politician whose rags-to-riches story is still appealing to the average Indian.

Critically, Modi is also seen by large segments of the Indian public as conveying an aura of confidence and authority on the international stage, and is credited with several foreign policy successes. Perhaps most important to the Indian voter, Modi was applauded for adopting a much tougher line toward Pakistan after his initial attempts at diplomatic outreach were undermined by multiple attacks from Pakistani-based terrorists. It is widely believed that Modi’s electoral fortunes were boosted by his unprecedented response to the deadliest single terrorist attack on Indian security forces in Kashmir in February 2019.REF

The Modi government laid the groundwork for such a response three years earlier, when it answered a 2016 attack on an Indian army camp in Kashmir with “surgical strikes” on terrorist “launch pads” across the Line of Control. After the February 2019 terror attack in Pulwama, Kashmir, the Modi government went a step further, targeting camps run by Jaish-e-Mohammed in Pakistan’s Khyber Pakhtunkwa province. This signaled an end to a decades-old cycle of passive restraint in response to Pakistani-based terrorism. While the decision makes future Indo–Pakistani crises more dangerous and volatile, it was also popular in India and “further fueled Modi’s stature, reinforcing the very characteristics that Modi often touts—leadership, decisiveness and muscularity.”REF

Additionally, Modi is credited with substantially bolstering India’s strategic partnerships with the U.S. and Japan and raising India’s profile in the Middle East, specifically upgrading its relationships with Israel and the Gulf Arab states. He also sought to mend ties with neighboring capitals in South Asia and the Indian Ocean as part of a “Neighborhood First” policy designed to shore up India’s position in its immediate periphery.

Finally, on balance, Modi effectively managed India’s contentious relationship with China. His government was the first in the world to take a stand against China’s Belt and Road Initiative and showed resolve during an unprecedented border standoff with Chinese forces in the Doklam plateau region in 2017. Modi complemented that with diplomatic outreach to Beijing the following April—embodied in the informal “Wuhan summit”REF—and has humored a charm offensive that Beijing adopted toward India since the Trump Administration began a campaign of escalating pressure on China in 2018.

Modi 2.0. For his second term, Prime Minister Modi is opting for consistency in the national security portfolio by retaining influential national security advisor Ajit Doval and elevating his position to a cabinet rank. Meanwhile, appointing the uniquely qualified S. Jaishankar, the former foreign secretary and Indian Ambassador to China and the U.S., as external affairs minister will substantially enhance the government’s ability to manage a turbulent global landscape.

Prime Minister Modi and his new cabinet will have no shortage of domestic and international challenges to tackle, including high unemployment, a banking crisis, a flagging investment climate, and an ambitious military-modernization program hindered by the country’s sclerotic defense bureaucracy. Externally, few expect a major breakthrough in Indo–Pakistani relations or a resumption of the comprehensive dialogue until Pakistan’s security complex demonstrates it is committed to abandoning its support for using terrorist groups as an extension of foreign policy.

Modi’s principal external challenge arguably remains the same: trying to manage the relationship with China and its ever-expanding reach into South Asia and the Indian Ocean. Other Indian foreign policy initiatives and priorities largely flow from this imperative, including Modi’s Neighborhood First policy and his attempt to elevate a Look East policy to an Act East policy. The latter has seen an expansion of India’s diplomatic and military outreach in East and Southeast Asia, and a strengthening of security ties with Vietnam and Japan.

Meanwhile, the Neighborhood First policy will again be featured prominently in Modi 2.0. While India has sought to pursue a more benevolent approach toward its South Asian and Indian Ocean neighbors since the 1990s, Prime Minister Modi elevated the importance of the initiative amid a marked expansion of Chinese influence in Sri Lanka, Nepal, and the Maldives over the past decade. In his first term, Modi chose neighboring Bhutan as his first foreign destination. This time he opted for the Maldives and Sri Lanka for his first foreign visits, both countries that in recent years have witnessed political instability and high-profile controversies over Chinese “debt traps” and its expanding influence on the islands. In some of his first remarks as external affairs minister, Jaishankar spoke of the need for India to do more for its immediate neighbors because it has “more resources and capability” while ties “do not need to be reciprocal.”REF

Surprisingly, perhaps some of the Modi administration’s most immediate external challenges will come from one of its most promising partners: the United States. As Indian voters were participating in the world’s largest democratic exercise, the bilateral relationship was under an unusual amount of distress. In 2019, the Trump Administration revoked duty-free treatment for Indian exports, threatened India with sanctions for importing Iranian oil, and is rumored to be considering launching a major trade investigation that could open a floodgate of tariffs on Indian exports. These moves joined prior irritants sparked by Congress-imposed sanctions on buyers of Russian defense hardware in 2017 and the Trump Administration’s decision to impose tariffs on Indian steel and aluminum in 2018.

In tandem, this is arguably a more formidable set of challenges than any the relationship has faced since the rapprochement of the early 2000s. These challenges also risk overshadowing the significant advances made in India–U.S. relations during Modi’s first term.

Part II. India–U.S. Relations in Modi 1.0

The India–U.S. relationship has been galloping forward since the signing of a 10-year defense partnership and civil nuclear deal in 2005. The groundwork laid by the BJP-led National Democratic Alliance government (1999–2004) was considerably expanded upon and upgraded by the Congress-led United Progressive Alliance government (2004–2014). However, Modi’s political ascent prior to the 2014 elections raised great uncertainty about the future of Indo–U.S. ties. For more than a decade, he had been informally denied a visa to visit the U.S. in part due to criticism he incurred for a violent spasm of communal riots and killings in Gujuarat in 2002 while he served as chief minister there.REF

Nevertheless, on the campaign trail in May 2014, Modi surprised observers by boldly declaring that India and the U.S. were “natural allies,” a formulation used by former BJP Prime Minister Atal Bihari Vajpayee more than a decade before.REF Modi then invited President Barack Obama to be the first U.S. President honored at India’s premier Republic Day ceremony in January 2015, where he declared: “For too long India and the U.S. have looked at each other across Europe and Atlantic. When I look towards the East, I see the Western shores of United States.”REF

In an interview with Time magazine that May, Modi again used the “natural allies” framework to describe Indo–U.S. relations,REF and in a June 2016 speech before a joint session of the U.S. Congress he declared: “[O]ur relationship has overcome the hesitations of history.”REF The following January, Modi proclaimed: “If America becomes stronger, India will be a natural beneficiary.”REF

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This warm embrace reflected the goodwill of the Indian public toward the U.S. In poll after poll, Indians regularly demonstrate they are more pro-American, more optimistic about America’s future, and more convinced of America’s benevolence than almost any other Indo–Pacific public. Of the publics in 37 countries polled by Pew in 2017, Indians were the least likely to view the U.S. unfavorably—just 9 percent as compared to 39 percent in Japan, 51 percent in Canada, 65 percent in Mexico, and 79 percent in Turkey.

A 2017 Survey by the Asian Research Network found that clear majorities in India support stronger ties with the U.S. and an increased U.S. presence in the region. Those polled also believed America’s best days were ahead of it while America’s influence was still growing.REF And, in a March 2019 survey of India’s strategic community by Brookings India, 75 percent of respondents identified the U.S. as India’s most important partner; only 12 percent said the same for India’s former patron, Russia.REF

Modi’s embrace of the U.S. was not merely rhetorical, either: After India signed its first “foundational” military agreement with the U.S. in 2002—a General Security of Military Information Agreement (GSOMIA)—the Modi government quickly inked two more in 2016 and 2018. The Logistics Exchange Memorandum of Understanding (LEMOA) allows the militaries of both countries access to each other’s facilities for refueling and replenishing, while the Communications, Compatibility and Security Agreement (COMCASA) allows the sale and exchange of encrypted communications data and equipment between the countries. The final foundational agreement, a Basic Exchange Cooperation Agreement (BECA), is being negotiated now.

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Notably, LEMOA was operationalized during the July 2017 Malabar naval exercises when an Indian Navy tanker refueled two U.S. warships.REF A U.S. Navy tanker returned the favor that November, refueling an Indian navy ship in the Sea of Japan.REF And following the signing of a Helicopter Operations from Ships other Than Aircraft Carriers (HOSTAC) agreement in October 2017,REF the two militaries also launched their first helicopter cross-decking exercises in December 2018.REF The same month, Washington and Delhi inaugurated their first ministerial-level “2+2” defense and foreign ministers dialogue.

These moves complement the signing of new arms sales agreements, the inauguration of new military exercises, and the revival of the highly symbolic “Quad,” which involves biannual meetings of diplomats from Australia, India, Japan, and the U.S.

A Willing Partner in President Trump. Shortly after taking office in 2017, the Trump Administration identified India as a keystone of his Free and Open Indo–Pacific strategy and took several important steps to advance the relationship. His Administration joined India’s opposition to China’s Belt and Road Initiative (BRI) and started a new Counterterrorism Designations Dialogue in late 2017, and arranged to have India station a military attaché with U.S. Naval Forces Central Command (CENTCOM) in Bahrain in March 2018. The latter addressed a long-standing Indian request to enhance dialogue with CENTCOM and expand cooperation in the Western Indian Ocean, Persian Gulf, and Middle East.

Perhaps most important, in August 2018, the Trump Administration issued a federal notification granting India Strategic Trade Authorization Tier 1 (STA-1), easing regulations for U.S. high-tech defense and aerospace exports. Previously listed in the STA-2 category with countries like Israel, Singapore, South Africa, and Taiwan, India is only the third Asian country to be granted STA-1 status (after U.S. treaty allies Japan and South Korea).REF The designation will reduce the number of licenses required for U.S. high-tech exports to India and increase the availability of license exceptions in a less burdensome export-control regime.

India has also been featured prominently in several of the Trump Administration’s most important strategy documents and speeches. The December 2017 U.S. National Security Strategy pledged to “deepen our strategic partnership with India and support its leadership role in Indian Ocean security and throughout the broader region,”REF while India received special treatment in the Department of Defense’s Indo–Pacific Strategy released on June 1, 2019.REF

The Trump Administration has also continued to emphasize the defense relationship and promote arms sales to India. In February 2019 it approved the sale of two 777 Large Aircraft Infrared Countermeasures Self Protection Suites to India for $190 million,REF while India fast-tracked the purchase of 72,400 SIG 716 U.S. assault rifles.REF In April, Washington approved the sale of 24 MH-60 Romeo Seahawk anti-submarine helicopters for $2.6 billion.REF The Trump Administration has also approved the sale of roughly two dozen Sea Guardian drones to India (the naval version of the armed Predator B drone), which would make India the first non–North Atlantic Treaty Organization (non-NATO), non-treaty ally to receive the platform if Delhi clears the purchase. U.S. companies are also expected to compete for a forthcoming purchase of 111 Naval Utility Helicopters.REF

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India already conducts more joint military drills, tabletop exercises, and defense dialogues with the U.S. than with any other country, which include more than 50 “cooperative events across all Services” annually.REF While the premier India–Japan–U.S. Malabar naval exercises attract the most attention, the U.S. and India also conduct special forces joint exercises, dubbed Vajra Prahar, and joint army exercises, dubbed Yudh Abhyas. In 2019, India and the U.S. are poised to conduct their “first-ever mega tri-Service amphibious exercise.”REF When conducted, it will mark only the second time that India will involve all three services in a military exercise with a foreign country.

Meanwhile, the U.S. Congress continues to be a driving force in bilateral relations, and the India caucus remains the largest country-specific caucus in the U.S. legislature. It has repeatedly signaled its enthusiastic support for the India–U.S. partnership, including through the Asia Reassurance Initiative Act of 2018REF and the National Defense Authorization Act (NDAA) of 2019.REF The latter extended and expanded an existing Maritime Security Initiative targeting Southeast Asia, to include several South Asian countries. The new Indo–Pacific Maritime Security Initiative is authorized through 2025 and makes India and other regional capitals eligible for receiving U.S. training, equipment, supplies, and small-scale construction projects.REF

In recent years, India and the U.S. have formed a Strategic Cyber Partnership and established a variety of new cooperative mechanisms, including a Maritime Security Dialogue, Space Dialogue, Homeland Security Dialogue, Cyber Security Dialogue, Joint Working Group on Counterterrorism, and Inter-Agency Task Force to foster defense trade.

In an attempt to jump-start nuclear cooperation more than a decade after signing a major nuclear deal, in March 2019 the two sides signed an agreement at the ninth India–U.S. Strategic Security Dialogue for U.S. firms to build six nuclear power plants in India.REF The U.S. Department of Energy and India’s Atomic Energy Agency have also agreed to collaborate on world-leading science and technology projects,REF while the Pentagon has agreed to have an Indian military representative at the Defense Innovation Unit Experimental, a U.S. government body that funds private companies working on cutting-edge defense technologies.

South Asia: From Weakness to Strength. America’s vast military and economic support for India’s archrival, Pakistan, was once among the most divisive issues in Indo–U.S. relations. No longer. President Trump has adopted a considerably tougher posture toward Pakistan, reflecting years of building frustration with Islamabad throughout Washington.REF Among other things, the Administration has suspended nearly all U.S. security aid to Islamabad and supported Pakistan’s “grey-listing” at the Financial Action Task Force, an international watchdog designed to combat money laundering and terrorist financing. The Administration also placed Pakistan on the State Department’s Special Watch List for religious freedom violations.

Furthermore, the Trump Administration has imposed additional unilateral sanctions on affiliates of the Pakistani-based terrorist group Lashkar-e-Taiba,REF and in March 2019 successfully organized a campaign to have United Nations sanctions placed on Masood Azhar, the notorious head of Pakistan’s Jaish-e-Mohammed terrorist group. After China had blocked multiple attempts at sanctioning Azhar in a U.N. sanctions committee, the Trump Administration and European allies threatened the take the issue to the U.N. Security Council, where Beijing would be forced to defend its protection of Pakistani terrorists at a more prominent forum. Beijing relented.

As Indrani Bagchi notes, “Washington’s distrust of [Pakistan] is almost as deep as India’s. Pakistan used to be an issue in the strategic discourse between U.S. and India until very recently. Not anymore.”REFThe Modi government was particularly appreciative of the supportive stance taken by the Trump Administration during the India–Pakistan crisis that emerged after the February 2019 Pulwama, Kashmir terrorist attack. At the 2+2 dialogue in Washington the following month, India’s foreign secretary “conveyed appreciation to the U.S. Government and to Secretary Pompeo personally for the firm support that India received.”REF News reports revealed a high level of coordination between the U.S. and Indian governments across different agencies and military services.

Pakistan is not the only place in India’s neighborhood where bilateral cooperation is expanding. Indian officials have privately praised the enhanced level of cooperation and intelligence sharing during recent political crises in Sri Lanka and Nepal. Washington and Delhi also have several data-sharing arrangements in place to improve maritime domain awareness in the Indian Ocean. That includes a pact on information sharing related to commercial or “white” shippingREF as well as the “sharing of information regarding Chinese maritime movement in the Indian Ocean.”REF Notably, India uses U.S.-made P8-I Poseidon aircraft to track Chinese submarines,REF which began operating regularly in the Indian Ocean in 2013, while anti-submarine warfare has been a prominent feature of numerous bilateral and trilateral naval exercises in recent years.

Part III. Bridging the Divide: Trade and Sanctions

Given this impressive track record, it is unsurprising that the election victory of the BJP and Prime Minister Modi was well-received in Washington.

Yet, while the advances in bilateral relations during Modi 1.0 were substantial, the relationship requires some immediate maintenance and attention to navigate a set of unusually thorny issues. In recent months, the Trump Administration hit India with a triple punch: (1) it revoked duty-free treatment for certain Indian exports under the Generalized System of Preferences (GSP);REF (2) it threatened sanctions on any Indian company importing oil from Iran;REF and (3) is reportedly considering the prospect of a “Section 301 investigation,”REF a section of the U.S. Trade Act of 1974 which allows the executive branch to impose tariffs on nations it accuses of unfair trade practices. A fourth fault line is beginning to emerge over policies that the Indian government is developing on e-commerce and data localization, which are strongly opposed by the U.S. government and private sector.

These disputes join existing friction over the Trump Administration’s earlier decision to impose tariffs on steel and aluminum products from India in March 2018,REF and the U.S. Congress’s passage of the Countering American Adversaries with Sanctions Act (CAATSA)REF in August 2017. CAATSA threatens to sanction any country conducting a “significant transaction” with Russia’s defense industry, which has been the principal supplier of military equipment to India for decades. Meanwhile, the U.S. steel and aluminum tariffs provoked a round of retaliatory Indian tariffs of up to 70 percent on 28 U.S. products; these tariffs were first announced in June 2018 but delayed in implementation until June 2019.REF

Trade Differences. The sharpest and most immediate challenges now confronting India and the U.S. relate to trade, which is perhaps ironic considering that the bilateral trade in goods reached an all-time high in 2018, while U.S. exports to India, including crude oil exports, are surging, shrinking the U.S. trade deficit. Total trade volumes were up nearly 13 percent in 2018, reaching $142 billion.REF Meanwhile, U.S. exports to India rose 19 percent, reaching $58.8 billion in 2018, while the trade deficit shrank 8 percent to $25.3 billion.REF (America’s trade deficit with China was $419.2 billion the same year.REF)

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Nevertheless, the Trump Administration made its discomfort with Indian trade practices and desire to negotiate a trade and investment deal known early in its tenure. It approached the negotiations with a litany of economic grievances, many of them encapsulated in the annual National Trade Estimate report released by the Office of the U.S. Trade Representative. The report covers everything from ethanol import restrictions to food-labeling requirements and Indian agricultural subsidies.REF Irritation with illiberal elements of India’s economic policies have been brewing in Washington for years, but prior Administrations had largely suppressed those complaints in deference to the development of the strategic partnership. Not so with the Trump Administration.

Negotiations on a trade deal began in 2017 with the U.S. government requesting that India ease restrictions on U.S. investments and lower trade barriers and state subsidies. The U.S. sought greater market access for U.S. agriculture, dairy products, and technology exports, while opposing Indian policies on medical devices and new Indian proposals governing data localization and e-commerce.REF Despite intensive negotiations, the proposals offered by Delhi were rejected by the Administration as insufficient, producing several public displays of frustration from U.S. Trade Representative Robert Lighthizer.

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The Trump Administration’s first punitive decision came in 2018 when it imposed tariffs on steel and aluminum exports from multiple countries, including India. Delhi delayed a decision to impose retaliatory tariffs over a half-dozen times in the hopes of averting a trade war and bridging economic differences, but allowed them to take effect in June 2019 following the Trump Administration’s decision to revoke its GSP status in spring 2019.

The GSP, instituted in 1976, is designed to give duty-free market access to exports from developing countries. While India was the largest beneficiary of GSP benefits, with $6.3 billion worth of Indian exports eligible,REF these exports accounted for only 11 percent of India’s $58.6 billion in exports to the U.S. in 2018.

The two countries have also found themselves at odds over Indian policies on e-commerce and data localization. In April 2018, the Reserve Bank of India issued an advisoryREF stating that firms must ensure that data relating to payment systems “are stored in a system only in India.”

In effect, India wants to exert greater sovereign control over its data, which it says is necessary for national security and commercial purposes. It wants to be able to access data immediately, rather than submit requests to foreign technology firms, and it wants to encourage the development of homegrown technology firms. The U.S. and many Western countries have rejected data-localization policies, which they see as protectionist in nature and as a threat to the free flow of information across borders that could contribute to a fracturing of the Internet. Forcing companies to use local data centers, the say,would raise costs, disrupt services, and potentially isolate and stunt the growth of India’s e-commerce sector.

As the two sides seek to navigate these issues, an ever larger threat looms on the horizon: the Trump Administration is rumored to be preparing a Section 301 investigation of India. President Trump has used the authority much more freely than his predecessors, namely to impose a wave of escalating tariffs on Chinese imports. A similar campaign against India could make the aluminum tariffs and GSP decisions look tame by comparison and risk a full-blown trade war. Publicly, the Office of the U.S. Trade Representative insists no investigation is imminent but has made no secret of its frustration with Indian trade negotiations or its willingness to use Section 301 authorities against countries it sees as deploying unfair trade practices.

Iran and Russia Sanctions. The second set of challenges to emerge in India–U.S. relations relate to two sets of U.S. sanctions. In November 2018 the Trump Administration signaled it would be imposing new sanctions on any country importing oil from Iran. Along with a handful of other countries, India was granted a six-month waiver to begin reducing oil imports from Iran. When those waivers expired in spring 2019, the Trump Administration decided against extending waivers for any country.

As Iran is one of India’s top oil suppliers, the Indian government resisted the decision and claimed it would not abide by U.S. unilateral sanctions. However, evidence suggests that Indian firms began halting imports from Iranian suppliers when U.S. sanctions took effect, and have to date been able to find alternative suppliers to meet their crude oil demand.

That is in no small part due to surging U.S. crude oil exports to India amid the American shale gas revolution.REF From zero exports of crude in 2016, U.S. exports jumped to 9.6 million barrels in 2017, 48.2 million barrels in 2018, and are potentially on pace for 96 million barrels in 2019 given first-quarter exports of 24 million barrels.REF

CAATSA, passed in July 2017, is potentially more disruptive. The legislation was well-intentioned: By threatening sanctions on any entities making “significant” purchases of Russian defense hardware, Congress sought to punish Russia for its interference in America’s 2016 elections. Unfortunately, the tools it crafted for doing so are prone to harming U.S. alliances and security partnerships. Demanding that Delhi halt all defense purchases from its top supplier of defense weapons for the past several decades is, from a practical and political standpoint, untenable.

Recognizing the potential for CAATSA sanctions to become a major irritant in bilateral relations, the 2019 NDAA contained a provision expanding the U.S. President’s ability to waive or delay sanctions in certain circumstances. However, CAATSA still risks creating both immediate and longer-term challenges. In October 2018, India signed a $5.5 billion deal to purchase advanced Russian S-400 air defense systems. Delivery is expected to begin in October 2020 and be complete by April 2023.REF

U.S. officials have told their Indian counterparts that a presidential waiver for India’s S-400 purchase is by no means guaranteed. What is guaranteed is that, for reasons unrelated to CAATSA, India would be unable to purchase certain U.S. weapons systems in the future, including advanced F-35 fighter jets, if it were to induct the S-400 system.

The problem will not end with the S-400, either. In May 2019, India announced a $5 billion purchase for 10 Kamov-31 airborne early warning helicopters for the Indian navy,REF and, as Tanvi Madan of the Brookings Institution notes,

over the last year, India has signed additional deals with Moscow for leasing a nuclear submarine, a manufacturing facility for Kalashnikov rifles, and the production or purchase of frigates. These four deals, worth over $12 billion (with additional deals being contemplated), would count as “significant transactions” under CAATSA.REF

As America’s share rises, Russia’s share of Indian arms imports has been falling significantly. But even with a substantial decline from 2014 to 2018, compared to 2009 to 2013, Russia still accounted for 58 percent of Indian arms imports in that period, and the Indian military has vast amounts of legacy Russian hardware that must be serviced and maintained.REF

Part IV: Policy Recommendations

In order to navigate these differences and re-energize the India–U.S. partnership, the U.S. government should:

Appoint an Assistant Secretary of State for South and Central Asia. The Trump Administration has been slow to nominate, or achieve confirmation for, key policy posts across multiple levels of government, including an Assistant Secretary of State for South Asia. Amb. Alice Wells has been serving as the Acting Assistant Secretrary but beyond her and National Security Council Senior Director for South and Central Asia (and former Heritage Foundation analyst) Lisa Curtis, there is a troubling lack of expertise on South Asia in key political positions throughout the Administration. Confirming an Assistant Secretary of State for South and Central Asia would mark an important step toward addressing that deficiency.

Establish an Inter-Agency Coordination Mechanism on India. Given the lack of senior-level attention and expertise on India in the Trump Administration, and its stated importance to the U.S. government’s Indo–Pacific Strategy, the Administration should consider establishing an inter-agency task force to coordinate U.S. policy toward India. The need has become even more acute since the emergence of substantial trade, economic, and sanctions friction points. At times it appears as if some U.S. government agencies, like the Office of the U.S. Trade Representative, are working at cross-purposes with the State and Defense Departments on India policy. Additionally, the inter-agency group should consult regularly with the India caucuses in the House and Senate, the largest country-specific caucuses in the U.S. Congress.

Harness Quad Consensus. The Quad dialogue was famously revived in November 2017 after a 10-year hiatus. Officials from Australia, India, Japan, and the United States have now met a total of four times at the level of Assistant Secretary or equivalent, in line with their commitment to gather semiannually. However, the Quad faces persistent questions about its durability, about its ultimate objectives, and about India’s reservations. Delhi has resisted elevating the dialogue to the ministerial level or inviting Australia to participate in quadrilateral naval drills. For now, the Quad is useful in its current capacity as a strategic coordination mechanism among four particularly capable democracies. Yet, there are ways of further elevating its utility that may be more politically palatable in all four capitals.

To begin, the four countries should begin issuing joint statements after each Quad meeting. Thus far, each has issued its own readout with only slight variations. Failing to issue joint statements is an unnecessary display of disunity in the face of overwhelming convergence and consensus.

Indeed, the Quad should consider not just joint statements following their meetings but joint vision statements on a range of relevant and important topics affecting Indo–Pacific security. India has already issued joint vision statements on the Indo–Pacific with JapanREF and the U.S.,REF as well as with France.REF

The four countries have articulated near-identical approaches to the underlying tenets and principles of the Free and Open Indo–Pacific strategy, including freedom of navigation, democratic governance, peaceful dispute settlement, a rules-based order, zero tolerance for terrorism and state sponsors of terrorism, respect for international law, the centrality of the Association of Southeast Asian Nations to the Free and Open Indo–Pacific, and infrastructure and connectivity initiatives that are transparent, high-quality, and financially sustainable.

Add Humanitarian Aid and Disaster Relief to the Quad’s Agenda. The first Quadrilateral Security Dialogue was held in 2007, but the group’s origins date back three years earlier. In 2004, an apocalyptic tsunami ravaged the Indian Ocean region, killing more than 230,000 people in 14 countries. In response, Australia, Japan, India, and the U.S. organized an unprecedented quadrilateral naval relief effort, laying the groundwork for future quadrilateral cooperation. Humanitarian aid and disaster relief is an area where the four countries are highly capable, face little political resistance, and can expand their soft power reach in the Indo–Pacific.

Organize a Quad Leaders Meeting. At the Group of 20 summit in Osaka, Japan, on June 28 and 29, Prime Minister Modi, Japanese Prime Minister Shinzo Abe, and U.S. President Donald Trump held a trilateral meeting and shared a ceremonial “fist bump.” It was the second time the three leaders met in a trilateral format and reflected years of growing practical and strategic convergence among the three countries, channeled through their robust trilateral strategic dialogue.

At a future venue they should seek a similar show of solidary albeit with the addition of Australia’s prime minister to provide a leaders-level endorsement of the Quad. President Trump should extend an invitation to the leaders of Australia, India, and Japan to hold a separate meeting and photo opportunity during the U.N. General Assembly in September 2019. India is often described as the most reluctant member of the Quad, and an appearance by Prime Minister Modi with other leaders of the Quad countries would send a signal to India’s bureaucracy and strategic community that the initiative has the full and enthusiastic endorsement of the prime minister’s office. There is ample precedent: Modi has taken the stage with the Chinese and Russian leaders during gatherings of the Russia-India-China (RIC) trilateral and with the leaders of Brazil, Russia, China, and South Africa during BRICS meetings.

Sign the Basic Exchange and Cooperation Agreement (BECA). After signing the first “foundational” military agreement, the GSOMIA, in 2002, India and the U.S. signed their second, LEMOA, in 2016, and their third, COMCASA, in 2018. Negotiations are now underway on the fourth and final foundational agreement, BECA. BECA would enable the two countries to share advanced satellite data for long-range navigation and missile targeting, among other things.

With Indian resistance to advanced U.S.–Indian defense cooperation diminishing, officials in both countries were previously optimistic a BECA deal would be agreed upon relatively early in Modi’s second term. It is unclear if recent friction over trade and sanctions has altered that assessment, but both countries should continue to make the defense pact a priority.

Amend the Arms Export Control Act to Make India a True “Major Defense Partner.” In 2016, the Obama Administration labeled India a “major defense partner,” a designation enshrined into law in the 2017 NDAA. The move signaled to the U.S. Department of Defense that India should receive preferential treatment in defense cooperation and arms sales. However, to fully realize this vision, the U.S. Department of State, which has authority over arms-export regulations, must also recognize India as a unique partner deserving of special treatment. In particular, the Arms Export Control Act (AECA) should be amended to include India among a special group of NATO and non-NATO partners and allies deserving of preferential treatment alongside Australia, Israel, Japan, New Zealand, and South Korea. Adding India to this category would reduce regulatory burdens on arms exports, including easing congressional notification requirements. A proposed amendment to the 2020 NDAA that would have changed India’s status in the AECA was stripped from the bill during committee negotiations.

Get Creative with Military Exercises. Despite public and private requests ever year since 2015, India has been notoriously reluctant to invite Australia to participate in the Malabar naval exercises, which have become an India–Japan–U.S. trilateral affair. Ideally, Delhi would overcome long-standing but unconvincing reservations about Australia’s participation, but in the event it does not, there are numerous other naval exercise formats and groupings that should be explored. For example, in early May 2019 the navies of India, Japan, the Philippines, and the U.S. conducted joint transit and routine exercises in the South China Sea, coincidentally overlapping with a U.S. freedom of navigation operation near one of China’s artificial islands on May 6.REF

India, Japan, and the U.S. should invite other regional partners to participate in joint naval activities and launch trilateral naval exercises with Australia, India, and the U.S. India might also consider hosting a series of exercises at its Andaman and Nicobar Command (ANC). Positioned at the entrance to the Indian Ocean at the mouth of the Strait of Malacca, the ANC would offer an ideal location for a maritime-domain-awareness fusion center.

Start a High-Level Dialogue on 5G Technology and the Future of Digital Security. Like many countries, India is navigating the emergence of the fifth generation of wireless technology cautiously. It is currently running field trials of the technology in which controversial Chinese firm Huawei has been allowed to participate. However, like their American and Australian counterparts, Indian security agencies have raised red flags about the security risks posed by Huawei, and Indian politicians are skeptical of the company’s links to the Chinese government and military. Former Indian Ambassador to China Guatam Bambawale recently explained that “one of the sensitive areas for China these days is the development of 5G…and if they are not sensitive to us, we should not be sensitive to them…. China can be transactional and we need to be transactional with them on this point.”REF

Like many others, India stands at the precipice of a a major decision that could shape its digital landscape and cybersecurity for a generation. U.S. officials must continue to clearly articulate their security concerns about Huawei through briefings with the Indian government while doing a better job of pointing interested parties to potential alternatives. They exist. Vietnam has plans to establish 5G networks without Huawei, and major U.S. telecommunications firms are already establishing 5G network test beds in the U.S. with all non-Huawei inputs that offer comparable services.

Broaden the Geography of the Indo–Pacific. In recent years, India and the U.S. (among many others) have embraced the “Indo–Pacific” construct as a successor to the “Asia–Pacific.” After gradually gaining currency for years, the Indo–Pacific under the Trump Administration has become firmly entrenched in America’s diplomatic and military lexicon. The U.S. Pacific Command was even renamed the Indo–Pacific Command (INDOPACO).

However, the U.S. still diverges with India (and most countries) on the geographic definition of the Indo–Pacific. America defines the western boundary of the Indo–Pacific at India’s Western border in part because that is the geographic divide used by the military’s combatant commands INDOPACOM and CENTCOM.REF

India and other countries use a more expansive definition in which the Indo–Pacific stretches westward to the eastern coast of Africa. This is a more comprehensive and arguably appropriate construct as the narrower definition fails to capture relevant developments in the western Indian Ocean, including China’s expanding partnership with Pakistan, its military base in Djibouti, and the growing tempo of its naval deployments to the region. Since the Indo–Pacific Strategy is envisioned as a comprehensive, whole-of-government effort, the Administration need not be wedded to the geographic boundaries used by the Department of Defense.

Make the Western Indian Ocean a Priority. While it has come to embrace the Indo–Pacific concept, India has long complained that the U.S. places too much emphasis on the Pacific half of the Indo–Pacific. Consequently, Indian strategists argue that bilateral collaboration in the western Indian Ocean has been lacking. The decision to station a permanent Indian military attaché with CENTCOM in Bahrain was an important step in bridging this gap, but India and the U.S. have more room for dialogue and collaboration in the Western Indian Ocean.

Strengthen Coordination in the Middle East and Trilateral Cooperation with Israel. One of Prime Minister Modi’s more significant foreign policy successes was substantially expanding cooperation with both the Gulf Arab monarchies, where India has an enormous diaspora, as well as with Israel, which has quietly become a close security partner and supplier of arms and technology to India. There is room for more trilateral engagements among India, Israel, and the U.S. that focus on enhancing counterterrorism, security, and intelligence cooperation. India and the U.S. might also consider conducting a joint exercise with a third country in the region, with Oman being a likely candidate.

Manage Differences on Afghanistan. On paper, India and the U.S. want the same thing in Afghanistan: peace, stability, and democracy. India has been an important partner for the nascent Afghan government and one of its largest external donors, contributing roughly $3 billion in assistance since the beginning of the conflict in 2001. Surveys consistently show that Afghans view India more favorably than any other country in the region. Since establishing an air corridor in 2017 India has also become Afghanistan’s top export market, with exports reaching $740 million in 2018.REF In early 2019, Afghanistan began using a new westbound export route through Iran’s Chabahar port to trade with India, bypassing Pakistan.

Nevertheless, for many years the U.S. and India have faced obstacles to cooperation in Afghanistan. In the late 2000s, the U.S. sought to limit India’s footprint in Afghanistan in deference to Pakistani sensitivities. Islamabad has long complained that India was using Afghan soil to encircle and destabilize the country—a claim that U.S. officials say is not supported by evidence.REF India and the U.S. have also diverged over the utility of negotiations with the Taliban, with Delhi long arguing there was no meaningful distinction to be made between “good Taliban” and “bad Taliban.” This has resulted in India being sidelined from several international forums and discussions on Afghanistan, even though its skepticism about the Taliban’s willingness to negotiate in good faith may prove well-founded. India has earned a seat at the table and should be more actively consulted in negotiations about Afghanistan’s future.

Keep Pushing for Indian Membership in the Nuclear Suppliers Groups (NSG). With U.S. support, India has been seeking membership in the NSG, the international body that regulates the trade of nuclear materials and “aims to prevent nuclear exports for commercial and peaceful purpose from being used to make nuclear weapons.”REF China has been the lone holdout in resisting Indian membership in the NSG, insisting its ally Pakistan be considered for entry as well, despite the latter’s abysmal nuclear nonproliferation record. Since the mid-2000s the U.S. has been helping to welcome India into the international nuclear order, and NSG membership is one of the last important steps to acknowledging India’s place in that order.

Craft a Framework for Private-Sector Defense Collaboration. To date, there is no legal or institutional framework for U.S. private-sector firms to share classified information with Indian private-sector defense firms in order to establish joint ventures and co-development projects. Such a framework, in the form of an Industrial Security Annex (ISA), is reportedly under negotiation and would “bring clarity on issues relating to liability, intellectual property rights and industrial safety.”REF

Request U.S. Participation in the Milan Naval Exercise. The biennial Milan naval exercise, last hosted at India’s Andaman and Nicobar Command in March 2018, included nine regional navies. The U.S. should seek participation in the exercise, potentially as an observer at first, in recognition of its role as an Indo–Pacific power.

Navigate CAATSA Differences and Reform the Legislation. In the short term, India and the U.S. need to navigate differences over India’s purchase of the S-400 air defense system from Russia. While the cost and capabilities may not match India’s needs, it was nevertheless a positive sign that in May 2019 the U.S. offered India the U.S.-made Terminal High Altitude Area Defense (THAAD) and Patriot missile defense systems.REF And, according to a report in the Indian press, the “U.S. has already offered its NASAMS II (National Advanced Surface-to-Air Missile System) for protection of the national capital region against ballistic missiles.”REF Other reports suggest that the U.S. is considering offering India the F-35 if it were to cancel its purchase of the S-400. Over the longer term, the U.S. Congress should amend the CAATSA legislation to transfer the waiver authority to the Secretary of State or Defense while expanding the waiver authority.

In its attempt to harm Russia, CAATSA risks driving a wedge between the U.S. and India. Nothing would make Moscow happier. There are ways of applying pressure to Russia that do not simultaneously undermine American interests.

Enhance Cooperation on Regional Infrastructure. With China’s expansive Belt and Road Initiative garnering greater international criticism for its lack of standards, transparency, and sustainable debt practices, in July 2018, Australia, Japan, and the U.S. signed a new regional infrastructure partnership agreement designed to “build infrastructure, address development challenges, increase connectivity, and promote economic growth”REF in the Indo–Pacific. India was conspicuously absent. While India continues to discuss new infrastructure initiatives with the U.S. and Japan at trilateral-dialogue and other forums, India’s participation in this initiative would be a good item for discussion at Quadrilateral dialogue.

Operationalize the Defense Technology and Trade Initiative (DTTI). The DTTI was established in 2012 as a means to “bring sustained leadership focus to the bilateral defense trade relationship, create opportunities for U.S.–India co-production and co-development, and foster more sophisticated science and technology cooperation, all while ensuring that bureaucratic processes and procedures do not [hinder] progress.”REF It was envisioned as a way to jump-start the co-production and co-development of defense hardware. Several small-scale projects were identified as pathfinder projects—including roll-on/roll-off kits for transport aircraft, unmanned aerial systems, portable electric-power generators, and chemical–biological weapons protection suits—but none were taken forward to the production phase.

In the Trump Administration, the DTTI has been led by Under Secretary of Defense for Acquisition and Sustainment Ellen Lord. Lord has reorganized the initiative, paring down its eight functional working groups to five now organized by domain: Army, Navy, Airforce, Aircraft, and “Other.”REF At the last DTTI meeting in March 2019, two sides identified potential for future cooperation on unmanned aerial vehicles, lightweight small arms, and aircraft support systems.REF Leaders in both countries should signal to their respective bureaucracies that finding a “win” for the DTTI is among the top priorities in the defense relationship.


The return of Prime Minister Modi and a BJP capable of governing with a simple majority should be a boon to Indian–U.S. relations. America has a confident and willing partner with an abundance of political capital; one increasingly unshackled from some of the constraints that hampered Indian–U.S. cooperation in the past. Prime Minister Modi has consistently argued that his decisions will be guided by India’s national interests, and time and again that has proven to be a closer partnership with the U.S.

Despite recent hiccups, Prime Minister Modi’s first term was a remarkably productive one for advancing the Indo–U.S. partnership. Toward the end of that term, however, there was an undeniable sense of unease in Delhi with the health of bilateral relations. It was fueled by an undercurrent of uncertainty about the Trump Administration’s intentions, objectives, and reliability. And it was further stoked by the Administration’s decision to target India with steel and aluminum tariffs, the revocation of GSP benefits, CAATSA and Iran sanctions, opposition to India’s data-localization policies, and concern about the potential for a future Section 301 investigation.

These are unfortunate setbacks. India and the U.S. have, in Prime Minister Modi’s words, “overcome the hesitations of history” because the U.S. has done something well with India it has traditionally done poorly: thought strategically and long term in scope. At times, Washington has bent over backwards to establish trust, carve out exemptions, and treat India on par with some of America’s closest allies. Rarely has it sought reciprocal compensation in return. In short, it has avoided being transactional.

It has done so because it correctly identified that India’s rise has been a net benefit to U.S. interests and values, and to regional and global security. It recognized that the long-term bet on India has incurred little cost and produced substantial benefit. And it acknowledged the vital role that India has to play in managing China’s rise; combating terrorism; promoting peace, stability, and democracy in South Asia and the Indian Ocean; and preserving an international rules-based order in which India is heavily invested.

Cooperation should be getting easier: Formidable irritants in bilateral relations have significantly diminished, including America’s patronage of Pakistan and India’s proximity to Moscow. Issues that once divided the two countries—such as India’s exile from the international nuclear order—now bring them together. Once desirous of expelling the U.S. military from the Indian Ocean, India now welcomes its stabilizing presence.

But the unwritten compact underpinning this durable partnership has limits. India shed some of its reservations about alignment with the U.S. in part because Washington promised that alignment was not synonymous with the loss of autonomy: that America would not force choices on India that threatened its sovereignty. The imposition of CAATSA and Iran sanctions, and the punitive trade measures adopted by the Trump Administration, are testing the compact, reviving fears about entanglement with superpowers that made Non-Alignment attractive during the Cold War.

Some of India’s objections are misplaced. The Iran and Russia sanctions are global in nature, not India-specific. India’s alignment with the U.S. did not invite the sanctions—quite the opposite. The strength of the partnership helped secure Delhi a six-month waiver from Iran oil sanctions and the expansion of presidential waiver authority on CAATSA sanctions. In both cases, alignment with the U.S. advanced India’s national interest. In Delhi, however, this nuance is lost in a chorus of questions about why India has to make costly changes to long-standing policies and relationships when the U.S. begins quarreling with others.

The Trump Administration stands on stronger ground in the trade disputes with India. Delhi has become accustomed to preferential treatment and special exceptions from Washington so that otherwise reasonable requests are sometimes perceived as dire affronts. In reality, the trade and investment barriers that Washington is asking Delhi to reform have vexed not only U.S. companies for years but many of India’s international partners as well.

If the Trump Administration is within its rights to press India on trade and investment reforms, it must do so in a way that does not allow one government agency to undermine the objectives of others, or threaten long-term U.S. strategic interests. A more robust inter-agency policymaking process and more high-level regional expertise within the Administration would help harmonize U.S. government policy and address deficiencies in the approach.

During a trip to India in late June 2019, Secretary of State Mike Pompeo sought to reassure the Indian government that the disputes would not hinder the broader relationship and expressed confidence that they would be resolved amicably. Several days later, President Trump enjoyed a warm exchange with Prime Minister Modi on the sidelines of the G20 summit in Tokyo, Japan, offering a welcome leaders-level endorsement of the partnership. The appointment of a new Indian commerce secretary has raised hopes he can rejuvenate stalled trade talks with the U.S.

India and the U.S. can accomplish a great deal in the years ahead, but to do so, they must clear some impending hurdles. Resolving their differences will require discomfort and concessions on both sides, but the prize is worth the pain. Their best hope for success is to get to work on a trade and investment deal that would forestall a larger trade war and prevent economic friction from further undermining strategic convergence.

Jeff M. Smith is Research Fellow in South Asia in the Asian Studies Center, of the Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, at The Heritage Foundation.


Jeff Smith
Jeff Smith

Director, Asian Studies Center

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