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Solving the India-US trade dispute must be the top priority

   In trade disputes, harsh retaliation and rhetoric are often precursors to amnesty and agreement. The hope is that India's imposition of tariffs last week on a number of imports from the United States is exactly that: the storm before the lull. Washington had taken away India's privileges under the generalised system of preferences, a market access privilege granted to developing countries. New Delhi's retaliatory tariffs were a response to an even earlier US sanction, a set of unilateral tariffs against steel and aluminium imports. Settling the trade dispute with the US needs to be at the top of policy priorities for the new Narendra Modi government. India's foreign policy trajectory will remain murky if this is allowed to snowball. As important, a festering dispute will add to the uncertainties that foreign investors are already having about India's faltering economy.
The first thing to realise is that neither India nor the US are interested in letting the dispute spin out of control. The tariffs both sides have imposed are small fry, and are not at all comparable to the gargantuan tariffs the US and China are imposing on each other. But it is also important to recognise that the Trump administration will not budge on trade with any country, no matter how close its strategic relationship. Second, the real problem is not tariffs but a breakdown in trust between the two sides in which both sides are to blame. Third, there are nonetheless genuine trade differences between the two countries. The real tough issues are not about tariffs and prices; they are regarding the future of the digital economy, at home and abroad. The US has already begun constructing a trade order in which there will be no barriers to cross-border data flow. India is of the view that the development of its own digital champions requires a certain degree of protection. The latter view has already resulted in a questionable set of draft e-commerce policies.
It is hard to see how these starkly different views of a global digital order, some of which has geopolitical repercussions, can be reconciled in just a few weeks. This may require a sustained dialogue between the two sides that has to go beyond the quick fixes that it is hoped will be reached in the next few months.



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