Vietnam’s US Trade Deal A Cautionary Tale For Indian Negotiators

US President Donald Trump has got his tax and spending cuts through Senate, although one amendment to the bill has stripped it of its Trump-bestowed monicker, the Big Beautiful Bill.

Economist and commentator Paul Krugman has been denouncing the bill for slashing healthcare and food aid expenditure to finance tax cuts for the wealthiest Americans, apart from for adding anything from $3 trillion to $5 trillion to the US national debt. Sense is not, however, at a premium in Trump’s America.

Donald Trump would appear to have strong-armed Vietnam into accepting what seems to be a very one-sided tariff deal.

Cautionary Tale

Vietnam would levy zero duty on imports from the US, while the US would levy 20% duty on Vietnamese exports, and 40% on trans-shipments. The trans-shipment clause is seen as an attempt to prevent Chinese manufacturers routing their wares to the US via Vietnam to escape penal duties on imports from China.

Vietnam is making the government relatively more efficient, reducing the number of states and centrally run cities from 63 to 34. And the new leadership of the Communist Party is cracking down on widespread corruption.

Vietnam’s deal offers a cautionary tale for Indian negotiators, as they try to wrap up a trade deal before the July 9 deadline that Trump has set for ending his suspension of the reciprocal tariffs announced on April 2. Corn, ethanol, soyabean and dairy are the four sticking points. It might make sense to allow the import of corn, so as to relieve pressure on food prices.

A Case For Corn

Corn is consumed directly and indirectly, corn being the most important part of chicken feed. Corn is used to make ethanol for India’s fuel-blending programme. Currently, India produces ethanol from sugarcane, corn and even rice. Considering the subsidy that goes into Indian farm produce, it makes sense to import the corn bearing American subsidy, rather than divert pricey rice for fermenting into ethanol.

A complexity with corn, as well as with soyabean, is that almost the entirety of the US crop is genetically modified, and India does not entertain GM corn or soya. According to Harish Damodaran of The Indian Express, 46% of the ethanol made in India for fuel blending comes from corn.

If India can find the administrative capacity to channel imported corn exclusively for ethanol production, without its leakage into the food chain, imported US corn can make Indian maize exclusively available for food and chicken feed, increasing such availability and easing the price of food.

True, such a move would be opposed by the sugar lobby, which wants to eliminate grain-based ethanol altogether and have the sugar industry hog all of ethanol production. The sugar lobby would oppose liberal import of ethanol as well.

Soya is a major crop in Madhya Pradesh, where the BJP still confronts a reasonably strong Congress, and the ruling party would not be in any hurry to push disgruntled farmers into the Opposition’s welcoming arms.

The Vietnamese negotiating tactic would appear to have been to kowtow to Trump while acting politically tough at home. Whether India would follow suit remains to be seen.

China’s AI Race

China is forging ahead in artificial intelligence (AI) and robotics. Alibaba has developed an AI model for scrutinising medical scans for early detection of cancer. China also staged the world’s first robot football tournament, in which three teams from three universities competed with their own teams of humanoid robots.

The robots did not quite put extinction fears in the dreams of Lionel Messi or Mbappe. But they did manage to move around the field, kicking a ball generally in the direction of the opposing team’s goal post. Tsinghua University’s team defeated the China Agricultural University’s side 5–3.

Not to be entirely outdone, India has announced a scheme for research, development and innovation (RDI). The government had announced a corpus of Rs 1 trillion for research and development in the 2024 budget, with only a vague notion of how that money would be spent. That idea has now taken the shape of a skeleton with some flesh on it, although significant parts remain bare-bones.

India’s Depressing R&D

The Anusandhan National Research Foundation, chaired by the prime minister, will approve guidelines for the RDI scheme and recommend a set of fund managers who would be eligible to get low-cost loans from a special purpose fund managed by the ANRF. A committee of secretaries will decide what kind of projects should be supported, with what kinds of focus.

The second-tier fund managers would give soft loans to R&D projects. “Financing in the form of equity may also be done, especially in case of startups. Contribution to Deep-Tech Fund of Funds (FoF) or any other FoF meant for RDI may also be considered,” says the official press release.

One whole year after the budget announcement, the scheme announced by the government still talks in conditional terms of possibilities. This is all very depressing.

Ideally, the government should use the R&D corpus to set up several Indian Capability Centres, with the equipment and personnel required to carry out contract research from private enterprises that are too small to invest in the needed kit and expertise to do the research themselves.

This should, of course, be done in partnership with the private sector, so that decisions are not kept pending because a key Sarkari babu could not attend a crucial meeting for perfectly valid reasons.

India Must Act Big And Bold

The proposal to fund R&D with loans is bizarre — or pathbreaking — since nowhere else on earth is research, whose outcomes are iffy, funded with loans that have to be repaid. R&D must be funded with grants or risk capital, that is, equity, that would be wiped out if the research outcome is unfavourable.

Indian startups have an R&D-intensive opportunity opening up on two fronts, at least: in developing motors that do not rely on rare-earth-infused permanent magnets; and to make in India the requirements of modern warfare, centred on drones, controlling them and destroying them, making use of advances in electronics, robotics and artificial intelligence.

The arms race that has been set in motion by US President Trump’s isolationist tendency and pressure on NATO members to increase their arms spending to 5% of GDP by 2035 is likely to create a shortage of cutting-edge weaponry, and India has an opportunity to innovate, design and manufacture these, for its own use and for export.

India’s startups are good enough to rise to the challenge, provided they have access to adequate levels of venture capital. Venture capital supply can be increased by asking India’s pension and life insurance industry to allocate a sliver of their funds to this form of risk capital. Some startups could generate stellar returns, even as a large number fail. But the average return should still be good enough to warrant a pension fund deploying its capital in venture capital.

India needs to think big and act bold, not take months to announce half-baked schemes that leave actual policy yet to be fleshed out, while making soundbites that resonate.