The India-US Leadership Agenda: Forging a New World Order

Last week, President Trump concluded his first state visit to India, with the aim of marking a new phase for the US-India relationship. The bilateral relationship between what will soon be two of the three largest economies globally has grown rapidly over the last two decades under a succession of US presidential administrations and Indian governments. During this period, US-India relations have moved on from a largely single-issue lens of managing the India-Pakistan rivalry to much broader cooperation across a range of areas including trade, investment, regional security and geo-politics. There has been a growing recognition over time that India is the strategic ally that America needs in what is set to be the fastest growing region in the world in the first half of this century and host to two major powers. Not coincidentally, this deepening of ties has also overlapped with the period where India’s economy has rapidly opened up and scaled, crossing US$1tn in 2007, US$2tn in 2014 and set to pass US$3tn this year.

Today, India stands at the inflection point of a new phase of growth and development which will see its rise in global significance as its economy scales to US$7-10tn in the next decade. This transformation is occurring against an increasingly volatile geo-economic and geo-strategic backdrop, in which an increasingly confident China, despite its own economic slowdown, will likely overtake the US to become the world’s largest economy, and in which the Western-led liberal order that has defined the past 75 years finds itself under increasing attack from both external and internal threats. Against this backdrop, the US has identified India as a key partner in the Greater Pacific region (the Pacific region, including India) and as a counter-weight to balance China, and has therefore adopted a policy of strengthening it economically and militarily, while India, particularly under the Modi government, has actively cultivated America as a trade and investment partner. However, to date, actual bilateral ties between the two countries that recognise each other as natural allies have fallen short of their potential. Mr. Modi’s visit to the US in September last year and President Trump’s state visit last week have created the appetite for a deeper and more strategic partnership and set the stage for the US and India to take their relationship to the next level.

This month’s Sign examines how the US and India can significantly expand their cooperation across multiple dimensions to create the “defining partnership of the 21st century”, balancing (and ideally, ultimately including) an increasingly geo-strategically assertive China, and jointly underwriting a new global order based on shared interests and values.

The Potential US-India Opportunity

Over the last two decades, the US-India relationship has rapidly grown as successive governments in both countries and from both sides of the respective political aisles have sought to cultivate a stronger partnership to build India as an effective counterweight to China in Asia, and increasingly, in world affairs. During this period, the US has helped bring India into the club of nuclear powers and supported strengthening India’s role in the UN and other multi-lateral institutions; it has sought to strengthen India’s military capabilities by becoming a major arms supplier and providing sophisticated weapons systems usually reserved for its closest allies; and from an economic perspective, it has become one of India’s most important trade and investment partners.

Progress has been sustained and systematic despite multiple transitions of power in these countries during this period, albeit gradual and incremental as both sides determine how to move forward. India and the US have the benefit of deep ties between their people: as President Trump noted in his speech during his recent trip, there are c.4m Indian-Americans in the US, representing one of the most affluent and well-assimilated immigrant communities in the US, and includes doctors, engineers, entrepreneurs, and leaders of companies like Google, Microsoft, Adobe, Mastercard and IBM, amongst others. Americans have a highly favourable view of India in terms of perceptions, it ranks along with America’s closest allies including Canada, the UK, France, Germany and Japan, and well ahead of rivals China, Russia and Pakistan (see chart), and slightly ahead of Israel.

Americans’ Views of Foreign Countries

The Trump administration has worked actively with the Modi government to strengthen the bilateral partnership and increase the popular and political goodwill between the two countries. The US under Trump has moved towards more actively and explicitly building up India as an economic and geo-political counterbalance in the ‘Indo-Pacific region’ , a term put in place by the Trump administration which itself reflects its active elevation of India in Asian affairs (vs. the earlier use of “Asia-Pacific”). This is at a time when an increasingly confident China has sought to expand its own sphere of influence in Asia and beyond through its Belt and Road Initiative (BRI). While Mr. Modi has to date resisted the typical obligations that come with a formal alliance – and cultivated strong independent relationships even with countries that are US rivals including China, Russia and Iran – he has also recognised the need for India to accord primacy to its strategic partnership with the US given China’s growing regional influence, the increasing risk of encirclement through China ‘String-of-Pearls’ strategy in the Indian Ocean, the on-going Sino-Indian border disputes, and China’s proximity to Pakistan. Mr. Modi has therefore focused on deepening economic and defence cooperation with the US wherever it aligns with Indian objectives.

The US-India relationship mode over the last two decades has been one of incremental, but sustained progress across multiple dimensions with the occasional diplomatic breakthrough (for example the US-India Nuclear Deal in 2008 which brought India into the club of responsible nuclear powers, and the granting of “Strategic Trade Authorization - Level 1” status in 2018 which enables the export of high-technology products in space and defence to India), and progress appears to have accelerated under the current leadership.

However, despite all of these positive drivers, the depth and breadth of relationship between the world’s largest and the world’s oldest (continuous) democracy has fallen short of its true potential. The US has invested three times the amount of FDI in China as it has in India² . Despite being the world’s fourth largest arms importer, India to date has not been even a top ten customer of the US defence industry, the world’s largest arms exporter. And while the US is India’s largest trading partner (displacing China’s number one position, in 2019), India is only the 8th largest trading partner to the US (below South Korea, a country whose economy is a little more than half the size of India’s). Further, despite ostensibly increasingly speaking of India as a counterweight to China, the US has not to date fully leveraged India’s regional relationships (e.g. with Iran or Afghanistan) as part of its own engagement strategy for the region. The scope for growth across all dimensions of the US-India relationship therefore remains significant.

Given the rise of China, the US-India relationship is clearly of greater importance to both America and India than at any previous point in time and looking forward, it is likely that it will need to deepen for reasons critical to both. However, personalities do matter, and the growing engagement between Mr. Modi and President Trump provides an important opportunity to create the blueprint for a more comprehensive bilateral engagement. During the past year the two leaders have significantly strengthened people-to-people ties, holding large, public, campaign-style events – first a “Howdy Modi” event in front of 50,000 people in Houston, Texas in September followed by a “Namaste Trump” event last week in Ahmedabad, in Mr. Modi’s home state of Gujarat, in front of crowd of over 100,000 – where both leaders have emphasised the ‘strategic’ and ‘natural’ basis of the partnership between the world’s most powerful country and a democracy and the world’s largest and oldest democracies (see inset below), setting the stage for the two countries to move the partnership to the next level and significantly deepen cooperation.

Further, the recent back-to-back state visits have resulted in a series of tangible actions from which further momentum can be built. In the near term the immediate focus is likely to be around large defence purchases (including a large US$3bn deal for the purchase of Apache helicopters which was announced during the visit) and negotiating a Phase 1 Trade Deal. However, a comprehensive strategic relationship will need to encompass multiple further dimensions, with the US and India working together to increase India’s role in global affairs, accelerate India’s domestic development and position India as a value-added geostrategic partner with skin in the game. And this has now become the task of policy makers on both sides. This paper examines the dimensions of what that agenda needs to be.

The US-India Agenda: Creating the Defining Partnership for the 21st Century

The question of what is a big enough ask from the relationship sides has vexed both sides for decades. Given the historic shifts in the world ranging from National Populism shaking the West to China being seen as a threat to US hegemony, ambition is called for in framing the relationship and in the actions that both agree to. The benchmark for such an audacious agenda is the series of moves that President Trump has made in and for Israel since he took office. If the survey above is accurate, Americans view India even more favourably than Israel, and fewer Americans find negatives about India than they do about Israel. With 1.3 billion people rising to 1.6 billion by 2050, India represents the next wave of customers to underpin America’s prosperity and if combined with its own population, it places the two democracies at nearly 2 billion by 2050 vs. China’s 1.4 billion.

An expanded agenda for the two countries would therefore focus on simultaneously expanding bilateral cooperation across three interrelated scales: the domestic transformation India’s economy, its emergence as a stand-alone regional hard power, and its rise in global significance as a political power. For the US-India relationship to flourish, India will need to become an effective counterbalance to China, which it clearly is not yet. This will require comprehensive engagement and specific actions across all three of these areas.

The scope of the US-India strategic partnership agenda across these three dimensions is explored in detail below, including the key issues to be addressed, potential actions to be taken and a perspective on the outcomes that could be achieved by a level of engagement that represents business as usual on the one hand and one that represents a truly strategic partnership between the two countries on the other hand.

America and India’s Road to Travel: One Way, One Road

China has laid out its journey, and its path to becoming a hyperpower is clear . China’s ally on that path has been America as it decided to induct China in the ways of the world: essentially, globalisation, democracy and free trade, with China selectively choosing what to adopt, what to modify and what to refuse. It helped China gain its place and learn how to operate in the global institutions that protected the world following two world wars. China strategically diverged from that path after the Global Financial Crisis when it lost confidence that US style capitalism and a US led global economic order was suited to China. And in the process the battle of the incumbent power and the new one was established.

China of course has the right to choose its own path and to exercise power and influence in keeping with its capabilities. Following the demise of the Cold War the world settled into a largely balanced state in which the dual primacy of liberalism (as encapsulated by UN Universal Declaration of Human Rights) and capitalism as the drivers of global peace, prosperity and freedom was widely accepted. However, the current direction and speed of China’s development under its authoritarian model that has further closed itself from the open flow of information and trade is creating a widening gap in values between China and the West raising concerns. And while this divergence in values does not need to be permanent, recalibrating China to a path where enough of its values are shared with America and its allies will require time. And India happens to be an important piece of the jigsaw that already shares enough of America’s values and can help buy that time by balancing China’s rise in the near term and acting as bridge to close the gap in the longer term. The path to achieving that is now opening up and the breadth of the path is clear.

There is a path of least resistance, the incremental one. It offers benefits to the parties and does not forestall the rapid rise of China or help reset it to relative level that would facilitate a constructive dialogue by the parties about China’s place at the world’s top table. In the final analysis, it leads to nothing geo-politically or geo-economically meaningful.

The more difficult path requires bold steps and building new power structures in far-flung places. It offers the benefit of creating an essential sphere of influence in what will otherwise be the backyard of the new great power, China. It is unclear whether the Trump Administration can dedicate the resources to achieving this, let alone whether it fits politically, psychologically or philosophically with the beliefs and objectives of the administration.

While reality no doubt lies between the two extremes, the Trump Administration has demonstrated its willingness to execute seemingly radical actions in support of strategic allies such as its moves regarding Israel. This year is one that is an election year and is bold and patient strategies are unlikely to rise to the top of the agenda. So, it falls on India to carry the torch in the short term. After the 2020 election, the US will need to increasingly prioritise its relationship with India vs. other foreign policy priorities as India’s economy rapidly rises in terms of its global significance. More radical measures will no doubt be required on what promises to be an exciting and difficult power struggle. It is imperative that both countries build on the significant repository of public and political goodwill that exists to forge a truly strategic partnership to have any chance of success.

Conclusion: A Critical Moment in the History of the Transition to a New World Order

This moment is important for the West, for Asia, for China, for the two leaders of America and India. Following eight decades of increasing development and global prosperity the US-led western liberal order has faltered, facing challenges from both an increasingly assertive China and its authoritarian political and economic model as well as a by the rise of domestic challenges in the form of National Populism and these two forces alone, one internal and one external, may succeed in helping it come to an end, at least in its current guise. The decline of this order represents a major source of risk for the continuing peace, prosperity and freedom of both its major supporters and its major beneficiaries. And as the most important force within the democratic liberal world order, the US, has arguably the most to lose from its decline, ironically partly due to its own fostering of National Populism and partly due to its fostering of China’s economic and geopolitical rise.

America and India as two major democracies are “natural” allies and combined have a greater chance of creating a resurgence in favour of democratic nations, regardless of the nature of the world order that may emerge. It is perhaps ironic that so much depends on the bilateral relationship between America and India being taken to a historic strategic level by two leaders whose critics accuse them of betraying the very values that their partnership can uphold at the global level: multilateralism, and foreign engagement in the case of President Trump and diversity and inclusion in the case of Mr Modi. While the recent boost in the bilateral relationship due to the actions of the current leaders is significant, it has been built on a foundation of decades of meaningful engagement by multiple governments on both sides, and it will continue to deepen and develop long after both leaders are gone. The logic of pursuing this relationship is clear and its timing has come. If Mr. Trump chooses a transactional mode, the opportunity will be lost. If Mr. Modi cannot deliver India at this time, the opportunity will also be lost. Neither leader can afford to be distracted.

Importantly, China’s rise to power is unlikely to be stalled, unlike Japan’s in the 1990s, but the nature of it may be quite different if it were to happen in the next decade rather than the next three to five decades following a well-managed engagement and process of alignment with the rest of the world.

The transition to a tripartite world order, including China, or a new global quadrilateral superpower structure, including the massive EU bloc, requires the US and India to work closely to forge a new framework for their cooperation. The stakes are clearly high. Failure to do so means America and India (and the world) will not migrate to a more peaceful world order and having failed will have only spurred China to accelerate its global reach and power. In the long term, the quality and extent of this relationship may well define how American power continues, declines or hands off to others. It will also define how and whether China operates peacefully alongside it or not. And so, India finds itself as the central player in the shaping of the new world order.

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