US-India: President Obama hosted his first state dinner on Tuesday — and his guest was Manmohan Singh, the Indian prime minister. That's a good sign. China, America's second-largest trade partner after Canada, usually gets the higher profile. But US-India trade is more balanced. The US should ensure it doesn't neglect the world's most populous democracy.
The US-China trading relationship is gigantic, but very one-sided — America's imports from China are 4.5 times its exports to China. That’s fueled by the undervalued Chinese currency, but it also to some extent reflects Chinese protectionism that hampers US exports.
Trade with India is much smaller, but growing rapidly. It is also in better balance. Indian exports to the US are only 25 per cent larger than US exports to India — less out of whack than US trade as a whole. Moreover, India is more open than it used to be to foreign direct investment (FDI), typically a US strength. India’s FDI was nearly a third of China's in 2008, up from less than 10 per cent in 2000-02.
Along with the huge and one-sided trade position, China’s holdings of $800 billion in US Treasuries make America’s economic relationship with the Middle Kingdom too unbalanced to be comfortable. With its huge population — nearly as large as China’s — and robust economic growth rate, India offers the US a healthy alternative partner.
India’s finances are not as solid as China’s. Moody’s warned on November 24, for example, that Indian banks had an excessively high level of non-performing loans. The Indian budget deficit is also large. That, however, is a problem shared with the US Singh, a social democrat, should also be broadly in tune politically with Obama.
Of course, the Obama administration can't afford to distance itself from China. Both economically and politically, however, India is a more congenial partner, and a deeper relationship could reduce the lopsidedness of US international relations. Obama should avoid focusing only on an overriding bilateral relationship with China, and instead dine more often with Singh.
