Former President Donald Trump dances after speaking at an election night watch party on November 6, 2024 in West Palm Beach, Florida.
| Photo Credit: AP
The return of Donald Trump as President of the world’s largest economy accounting for more than a quarter of the global GDP could mean a multiplicity of shifts, some of them detrimental, for several key economies, including India. It would mean a return to escalating trade wars; a continuation of economic protectionism; jettisoning multilateralism; and imposing restrictions on immigration into the U.S., which could hinder India’s IT services sector.
The U.S. is India’s second largest trading partner, accounting for $118.3 billion. But, much to Mr. Trump’s dismay, it is the only country with which India has a trade surplus ($36.74 billion in the same period) among its top five trading partners.
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While the U.S. counts India among its top 10 trading partners, its share of total exports to India accounts for less than 3%. More importantly, the U.S. has remained the largest source of Foreign Direct Investment for India ($103 billion in the last fiscal).
These numbers become important now with the return of Mr. Trump, as fears resurface about his focus on bilateral trade and circumvention of agreements negotiated through the World Trade Organization (WTO), such as his unilateral imposition of import duties on aluminium and steel in 2018 that affected many countries, including India. While India attempted to retaliate in 2019 with higher tariffs on farm produce like apples and walnuts, it did not follow through with its threat.
During his election campaigns, Mr. Trump called India a “major abuser” of trade ties. He targeted both China and India in his first term with measures ranging from outright bans to consistently increasing tariffs on a range of goods. A major flash point with China occurred when he banned Huawei’s 5G mobile devices in 2018. He also sought his NATO allies to follow suit, even while his policies towards Western partners turned negative.
Mr. Trump’s ‘America First’ campaign calls for escalating such trade wars with its allies and adversaries. His proposed 10% tax on all imports and 60% on Chinese-made products would have a worldwide inflationary effect. This follows a Federal Reserve rate cut of 50 basis points on September 18, the first in four years, as inflation eased and the job market began cooling in the U.S. Mr. Trump’s proposed tariffs would most likely get passed onto consumers, triggering a return to high inflation domestically and leading to similar pressures globally. The rise in prices in the U.S. will seep through global supply chains as the U.S. commands a large export share for top technology and agricultural products.
The biggest impact would likely be on China, which for decades has been U.S.’s largest trading partner with a surplus of more than $380 billion in 2022, according to the office of the U.S. Trade Representative. This is a surplus that Mr. Trump would move quickly to bridge, but he would be doing so at a time when the Chinese economy has been reeling from the bottoming out of its property market and a general decline in growth, which led the People’s Bank of China to cut interest rates as recent as in September to enhance liquidity and support lending.
China has already been looking at other markets for its exports, but it faces stiff opposition for many of its products, such as electric vehicles, in the European Union and iron and steel in India.
For India, Mr. Trump’s return could affect a range of products, from generic drugs to IT services. A key concern would be a return of restrictions to the highly skilled worker, or the H1B and L1 visa programmes that Mr. Trump effected in his first term. Denial rates for Indian IT professionals seeking H1B visas surged under Mr. Trump’s administration, which led companies such as Infosys to hire about 10,0000 American workers. While Infosys called it a “strategic human asset investment”, that it was triggered by the U.S. government’s attempts to tighten immigration was apparent.
Mr. Trump has also pledged to raise oil and natural gas drilling, which would mean that the U.S. would once again retreat from its climate goals. This would most likely also alter global supply chains as the EU continues to attempt to move away from depending on Russian LNG, which has already reduced from 40% in 2019 to 15% in 2024. In the same period, the U.S.’s share increased to 46% of EU’s natural gas supplies. It would be interesting to watch how Mr. Trump negotiates with the EU’s Carbon Border Adjustment Mechanism, which attempts to reduce the carbon footprint of EU’s imports, as the U.S. under his administration may return to fossil-fuel based power generation and production processes.
kunal.shankar@thehindu.co.in
Published – November 07, 2024 12:55 am IST
