This Article is From Nov 12, 2020

Biden Must Dump Trump Tariffs, Focus On India For Silicon Valley

For all the hype around "Howdy Modi" and "Namaste Trump," the US.-India economic relationship has been backsliding the last four years. To move forward, Joe Biden must steer the conversation away from tariffs, an obsession of his predecessor.

The big opportunity for the likes of Apple Inc., Facebook Inc., Amazon.com Inc. and Alphabet Inc.'s Google is in India's still nascent but rapidly growing digital economy: smartphone penetration of 32%, compared with 61% in China. Silicon Valley deserves to be high up in the incoming president's priorities.

By the time Donald Trump and Prime Minister Narendra Modi walked hand-in-hand in a Houston stadium in September 2019, the U.S. had raised tariffs on 14% of Indian exports, including steel, aluminum, textiles and jewelry. New Delhi had retaliated by making California almonds and Washington apples costlier. The pageantry and the bromance - were on display again during Trump's India visit in February. Despite Trump's claim of "tremendous progress," there was no outcome on a trade deal.

At $34 billion last year, US exports to India aren't doing badly. Yes, China took in three times as much American merchandise, but its economy is nearly five times bigger. And that's just goods. Throw in India's spending on US technology, travel and other services - already at 43% of Chinese levels - and it's clear that Trump, the self-proclaimed Tariff Man, was alienating a potentially valuable ally over a $29 billion trade deficit, not even a 10th of the gap with China.

It's time for a saner approach. The Biden administration can strike a bargain, persuading New Delhi to accommodate greater US involvement in consumer apps, and to treat this investment fairly. In exchange, the US would unwind Trump's tariff increases and restore India's access to the so-called generalized system of preferences that encourage developing nations to industrialize. Trump took away India's GSP privilege last year.

For all the hype around "Howdy Modi" and "Namaste Trump," the US-India economic relationship has been backsliding the last four years. To move forward, Joe Biden must steer the conversation away from tariffs, an obsession of his predecessor.

The big opportunity for the likes of Apple Inc., Facebook Inc., Amazon.com Inc. and Alphabet Inc.'s Google is in India's still nascent but rapidly growing digital economy: smartphone penetration of 32%, compared with 61% in China. Silicon Valley deserves to be high up in the incoming president's priorities.

By the time Donald Trump and Prime Minister Narendra Modi walked hand-in-hand in a Houston stadium in September 2019, the U.S. had raised tariffs on 14% of Indian exports, including steel, aluminum, textiles and jewelry. New Delhi had retaliated by making California almonds and Washington apples costlier. The pageantry - and the bromance- were on display again during Trump's India visit in February. Despite Trump's claim of "tremendous progress," there was no outcome on a trade deal.

At $34 billion last year, US exports to India aren't doing badly. Yes, China took in three times as much American merchandise, but its economy is nearly five times bigger. And that's just goods. Throw in India's spending on U. technology, travel and other services -already at 43% of Chinese levels - and it's clear that Trump, the self-proclaimed Tariff Man, was alienating a potentially valuable ally over a $29 billion trade deficit, not even a 10th of the gap with China.

It's time for a saner approach. The Biden administration can strike a bargain, persuading New Delhi to accommodate greater U.S. involvement in consumer apps, and to treat this investment fairly. In exchange, the US would unwind Trump's tariff increases and restore India's access to the so-called generalized system of preferences that encourage developing nations to industrialize. Trump took away India's GSP privilege last year.

Some parts of India's digital economy are already controlled by US companies. Google Pay and Walmart Inc.'s PhonePe dominate instantaneously settled mobile payments. Last week, Facebook got the regulatory go-ahead for WhatsApp users to access the network, which has seen transactions double over the past year to 2 billion last month.

But moving small sums from one bank to another is no money-spinner. It's a customer acquisition tool, provided tech firms can then do more with these subscribers and their data. It's here that Biden's team will have to engage with New Delhi, which is planning to tighten already restrictive e-commerce rules by mandating government access to online companies' source codes and algorithms. The Indian payments regulator wants to limit the share of any app to 30%, probably because WhatsApp's 400 million customer base means it can have a chokehold on an important part of the nation's financial plumbing.

The Modi government is hardly unique in its wariness of Big Tech's market power, and how it may be abused. Europe wants to rein in Silicon Valley and impose a global digital tax. Beijing protected its own market for homegrown players, and produced runaway successes. But China now seems to be having misgivings about the deep entrenchment of tech in the country's financial architecture, as evidenced by the recent busting of Ant Group Co.'s initial public offering. Broader anti-trust rules against dominant corporations like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are coming.

India is the only billion-plus-people market where US tech firms can scale up. Just like in China, where they've been effectively shut out, the ultimate prize will be to substitute hard collateral in consumer and business loans with payments and e-commerce data. Because the reward is large, resistance from domestic lobby groups will be tough. Straightforward demands - like India must allow platforms to store consumer data wherever in the world they want - would get tangled in concerns around financial stability and national sovereignty.

Tycoon Mukesh Ambani, whose Jio Platforms Ltd. is the leading contender to become an Indian super-app, has called for an end to "data colonization" by global corporations. PM Modi has embarked on a campaign of self-reliance, though for now it seems to favor the US by aiming to reduce dependence on Chinese imports and investment. Drawn by India's financial incentives for local manufacturing, Apple's supply chain is looking to set up assemblies.

Keeping the Indian digital market open to US tech may appear a modest diplomatic goal, but hitting it is important. For one thing, a more ambitious project, such as a free trade agreement, will be a hard sell. Pandemic-hit US. workers will worry about losing jobs to cheaper Indian techies, especially if India pushes for a reversal of Trump's H1-B visa curbs. Indian farmers will fear ruin at the hands of more productive American agriculture.

More crucially, digital India is where America Inc.'s checks are going. Ambani, India's richest man, has raised $26 billion this year for his online and retail businesses from global investors, including Facebook and Google. To that, add the $16 billion Walmart paid for e-commerce website Flipkart, and the billions of dollars committed to India by Amazon. Being foreign-controlled, neither Amazon India nor Flipkart is allowed to own inventory or openly discount merchandise.

Biden would do well to part ways with Tariff Man, and instead follow the money.

(Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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