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How America’s friendly action could work out for India

The US is friendshoring, and one of the main beneficiaries could be India. US Treasury Secretary Janet Yellen recently said that as the US seeks to mitigate supply chain risks, it wants to deepen integration with trusted partners such as India. Mint explains the new term in town.

What does friendshoring mean?

Friendshoring aims to stimulate trade and deepen economic relations between trusted trading partners; strengthen supply chains; and diversify away from countries that can pose geopolitical and security risks to the global supply chain. In the post-pandemic world rocked by geopolitical headwinds, the concept emerged as an alternative model for international trade. This would reduce over-dependence on countries, which can pose a security risk and are the sole source of critical inputs and raw materials. However, limiting trade in key inputs to trusted countries could negate the benefits of globalization.

How does India play a role in American friendshoring?

Against the backdrop of a challenging global economic outlook and geopolitical instability, Yellen said during her visit to India in mid-November that the US would continue to deepen economic relations with India as it continues its “friendship” approach with trusted trading partners. She also stated that the global economic trajectory would be determined by the work the two countries undertake together. The US Treasury Secretary called on India to play an important role, especially in debt restructuring of middle and low-income countries, as it assumes the G20 presidency.

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What does India-US trade data look like?

In 2021-2022, the US re-established itself as India’s largest trading partner. Bilateral trade between the two was worth $119.41 billion. India’s trade surplus with the US was $32.8 billion in 2021-2022. In terms of exports, the US is India’s largest trading partner, while the US ranks third in terms of imports. Also, the US is the main source of foreign portfolio investment in India.

Does it go against multilateral pacts?

Friendshoring should be practiced in the true spirit in countries committed to democracy and peace. Within the bloc, no country should patronize another country, especially one that harbors terrorism. It is important to note that with an expanded trade agenda, the WTO was created on the initiative of OECD countries, mainly to protect the interests of the US and European countries. So while a country has a right to act in its own best interest, frequent changes in strategy and game plan may not sound right.

What strategy should India follow?

As India prepares to take over the G20 Presidency in December, it should take advantage of this unique opportunity and contribute to the global agenda. It should work towards further strengthening bilateral trade relations with major trading partners. However, the country must also continue to trade actively with countries with which it has built solid and proven trade relations and explore trade opportunities that work to the benefit of its citizens.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

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