Report
Climate is the Future of the US-India Trade Relationship
As the United States and India seek to turn climate action into economic opportunities
Trevor Sutton and Arunabha Ghosh
October 2024 |
Suggested Citation: Sutton, Trevor and Arunabha Ghosh. 2024. Climate Is the Future of the U.S.-India Trade Relationship. Washington D.C.: Center for American Progress.
Overview
Trade relations have historically been an irritant between India and the US. This has seen a significant shift, and trade relations between the two countries have developed into a multi-faceted strategic partnership. However, this relationship remains superficial, and clashes persist. In key respects, the fundamentals of the trade relationship have changed very little since both countries joined the WTO, and, in some respects, matters have deteriorated. Emerging trends show that the US and India are more aligned than ever before on matters of the structure of the global economy, which creates opportunities for green trade, encompassing trade that supports secure and resilient clean energy supply chains and rewards low-carbon manufacturing.
Key Highlights:
- Over the past decade, the strategic direction of U.S. and Indian trade policy has shifted in ways that reflect convergent perspectives on many key issues, such as:
- Development of bilateral and plurilateral trade relationships
- Trade as an enabler of industrial policy
- The deepening conviction that China’s economic rise and its role in global trade and its dominant position in many global supply chains, is a national security threat and a major challenge to realising economic development aims
- There has been a reemergence of ambitious industrial policy in both countries. Industrial policy has been a foundational element of India’s economic policy and statecraft, but since 1980 and especially after joining the WTO, Indian authorities have taken a progressively lighter touch in insulating domestic manufacturing from market forces. Since COVID-19, US economic policy also saw a reversing of a decades-long trend of limited state involvement in the manufacturing sector
- Both countries have prioritised derisking supply chains to limit exposure to Chinese coercion and malign activities. Since 2014, India has opened nearly 150 investigations into Chinese unfair trade practices—compared with 34 against Korea, and seven against the US. Similarly, the past two US administrations have imposed a series of increasingly steep tariffs against an expanding list of Chinese on novel national and economic security rationales. Because of this heightened focus on China and industrial development, both the United States and India have shed their historical roles as leading proponents and critics, respectively, of trade openness.
- Both India and the US have made a strategic bet on clean energy technologies to be a major driver of economic growth and job creation in the twenty-first century and are running up against insufficient domestic resources to meet their energy security needs, and struggling to develop new supply chains to fill the gap.
- Cooperation around green trade benefits both countries through strengthening of supply chains, stimulating innovation, and broadening export opportunities. It would also mitigate concerns about China’s unfair trade practices and its present and potential dominant market position. In addition, the narrow scope of green trade lends itself to tailored, creative trade cooperation of the kind currently pursued by both Washington and New Delhi.
Key Recommendations:
- Pursue interoperability of sustainability standards, carbon accounting, customs nomenclature, and green procurement.
- Develop shared principles around green subsidies.
- Agree on endorsing clean energy subsidies along with joint investment.
- Enhance transparency and information exchange to build supply chains based on complementary strengths.
- Consider a green goods and services list.
- Pursue a bilateral sectoral agreement that ties market access to carbon intensity.
- Explore a climate peace clause.
- Deepen cooperation around critical minerals.
- Host constructive discussions around border carbon adjustments.
- Promote diffusion of next-generation climate technologies.
"At a time when global trade rules and institutions are at risk of obsolescence and climate-related trade measures have attracted fierce criticism from the Global South, a deal between New Delhi and Washington would send a strong message that developed and developing countries can work together to prosper in a global economy defined by transformative industrial policy, great power competition, and the rise of clean energy industries."
