View: The US needs to make India a bigger trade partner to counter China’s new playbook



Noah Smith|The Economic Times

The conflict between China and India has made it urgently necessary for the US to deepen its economic integration with the latter country, through increased trade and investment. On June 15, 20 Indian soldiers and an unknown number of Chinese soldiers were killed when the two countries clashed over a disputed border. In response, India banned a number of Chinese apps. As my Bloomberg Opinion colleague Mihir Sharma points out, these conflicts are likely to drive India closer to the US in strategic terms.

But that budding alliance will be harder to cement without deeper economic ties. Not only does trade tend to cement alliances, but building up allied countries’ economies makes them much more able to resist military encroachments by rivals. The US once understood this; the Marshall Plan famously helped stabilize Western Europe after World War II and prevent it from falling into the Soviet orbit, while opening US markets to Japanese, South Korean and Taiwanese products helped those countries industrialize.

In recent years the US seems to have forgotten this lesson. Opposition to the Trans-Pacific Partnership largely ignored the geopolitical importance of that treaty, which would have created an Asian trade bloc to rival China. Now, with the US-China rivalry heating up, let’s hope the US will remember the importance of trade and investment as tools for cementing alliances. And the most important ally will almost certainly be India.

Deepening the economic partnership with India will be a long and difficult road. India now is only the US’s ninth most important trading partner, barely ahead of tiny Taiwan.

Increasing US-India FDI would yield multiple benefits. In addition to making both countries money and aligning the interests of the two nations even further, making India a richer, more advanced and more powerful country would strengthen it as a bulwark against Chinese domination of Asia. India is already taking various steps to try to attract more US direct investment; now the US needs to do its part. Tax breaks and other incentives for US companies to invest in India could help grow and solidify this crucial 21st-century partnership.

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