India could play a major role in the emerging U.S. strategy of “friendshoring,” Treasury Secretary Janet Yellen said during a visit to the country this week, which would bring “significant economic benefits to both our nations.”
“The United States believes in economic integration” and will continue to vigorously promote it, Yellen said. However, “we must also account for the probability of disruptions to trade.” For example, “malicious actors can use their market positions to try to gain geopolitical leverage or disrupt trade for their own gain.” Dependence on single sources for critical inputs has also proven to be risky. While Yellen specifically referenced Russia on these points, U.S. officials have made clear that they have similar concerns about China.
In response, Yellen said, the U.S. is pursuing a strategy to “diversify away from countries that present geopolitical and security risks to our supply chain” as well as “manufacturers whose approaches clash with our human rights values.” This strategy “will also create redundancies in our supply chain to mitigate over-concentration risks.”
To implement this strategy the U.S. is “proactively deepening economic integration with trusted trading partners,” Yellen said, including both developing and advanced economies. The U.S. and India are already moving in this direction, with new supply chains developing as U.S. companies shift some manufacturing away from China and existing supply chains becoming more robust with the expansion of investments and operations in India. On the government side, the U.S. is “partnering with India to grow local industries and connect them to global supply chains,” including through investments by the U.S. International Development Finance Corporation in projects from microfinance to renewable energy.
Moving forward, Yellen said, there is even more opportunity for the two partners to expand trade ties. One example is the Indo-Pacific Economic Framework, where India and other participating countries “will help write rules for our new economy.” However, India has so far declined to participate in the trade pillar of the IPEF, which is expected to address issues such as digital trade, trade facilitation, agriculture, labor rights, and competition. Some observers also point out that the U.S. and India have fundamental differences on some key trade issues and opine that without reinstating the Generalized System of Preferences or making other concessions on tariffs, which does not appear to be under active consideration in Washington, the U.S. currently has little economic leverage to push India to negotiate or compromise.
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