India Gears Up for Trump 2.0

New Delhi: As New Delhi waits for a new Trump administration to take charge in Washington in January, it is getting ready to tackle some potential friction points with the United States, which includes immigration issues, stringent H-1B visa norms, trade protectionism and tariffs.

During his campaign, Mr Trump promised an increase in economic activities and incentivising domestic production to reduce dependency on imports and job creation. Prime Minister Narendra Modi’s policies, incidentally, also reflect the same sentiments. He has been pushing “Make in India” to turn India into a major manufacturing hub, apart from creating jobs and reducing imports, particularly in the defence sector, and increasing exports.

A report from market research firm Nomura suggested that despite his tough stance on trade, Mr Trump’s victory could be beneficial for India. It added India's trade surplus with the US may also attract scrutiny and the new government wasw likely to implement punitive measures against trading partners seen to be artificially devaluing their currencies.

“Within Asia, we expect winners and losers. China could be most adversely impacted due to its position of direct confrontation with the US on multiple fronts. Highly open economies such as Hong Kong, Singapore and South Korea could also be negatively impacted. On the other hand, India and parts of Southeast Asia may benefit from the new growth opportunities created by reconfiguration and diversification of global value chains,” Nomura said.

Mr Trump’s return to the White House is expected to foster greater economic partnership and collaboration between American and Indian companies. Mr Trump’s supporter Elon Musk, the billionaire owner of Tesla and Twitter, is getting ready to make inroads into the Indian market in a big way.

However, Mr Trump’s principled position on import tariffs may affect India’s interests. During his campaign, Mr Trump made it clear that if elected he would impose an across-the-board tariff of 10 to 20 per cent on every import coming into the US. He also threatened to increase the tariff to 60 per cent on all Chinese imports.

Mr Trump believes these steps will help boost manufacturing and jobs creation, apart from bringing money to fund his policy initiatives like the tax cuts. Given Mr Trump’s hawkish approach towards China, India is expected to gain as the US may try to move away from reliance on Chinese products and shift supply chains to India and other countries.

However, a stringent tariff regime may not be beneficial for India as well, particularly in the pharmaceutical, textiles and information technology sectors. In his previous tenure, Mr Trump had labelled India a “tariff king” and had criticised India's tax rates, asserting they were excessively high and even termed India a “tariff abuser”. The Trump administration also took off India's name from the list of countries that had a trade advantage under the Generalised System of Preferences (GSP) and enacted tariffs on steel and aluminium. In response, in 2019, India imposed retaliatory tariffs on several US products after the US refused to give it exemptions. A possibility of a new universal tariff by the US may again invite retaliatory measures from some countries, including India.

During his election campaign, Mr Trump had brought up India's high taxes on certain American products, particularly Harley-Davidson motorcycles, threatening to impose reciprocal tariffs if he returned to power.

Another major area of concern might be Mr Trump’s anti-immigration stance, which may impact the number of H-1B visas that Indians utilise. There is a possibility that he may tweak the H-1B visa norms by reducing visa numbers, modifying the cap system, and prioritising candidates with advanced qualifications or specialist expertise. Almost 70 per cent of all H-1B visas are used by Indians working in the IT sector.

For the time being, the volatile stock market is showing signs of improvement. Mr Trump’s comeback is expected to stabilise the market and may reverse the recent outflows by Foreign Institutional Investors (FIIs).