Trump 2.0 policies can benefit Indian economy

The victory of Donald Trump in the US presidential election is likely to mark a sharp change in the domestic and global policies of his country. It is imperative for India to try and quickly figure out how its relations with the US will pan out.

Let’s see how the IMF (International Monetary Fund) is looking at the scenario ahead while Trump readies to take over. The risk to the Asia-Pacific has increased (even before Trump won) and is likely to lead to a lower economic growth rate. There is the prospect of new trade restrictions being imposed by the US. China will offer no help as a growth engine as its population will keep ageing and productivity growth slows down.

If you think that Trump will step in with growth for all to fill the gap created by China’s slowdown, then it will be downright naive. He has been shouting from the rooftops that he will raise import duties and throw out illegal immigrants. Legal immigrants will, as a result, seek to ask for more. Higher wages will put pressure on business and likely lead to lower rates of return.

This will put downside pressure on stocks and put off investors who will not come forward to pay out more and create the groundwork for businesses to invest and push economic growth. As against this, Trump has promised to cut tax rates to help businesses to raise manufacturing investment and enable the country to grow.

India will be hard pressed to raise exports to the US. It is set to benefit from the western strategic pursuit of ‘China plus one’ policy so as to get the business arms of western manufacturing units in China to relocate to South and Southeast Asia. India aspires further. It wants to manufacture for its own markets as well as for the rest of the world. But India can hardly do this if the new Trump administration raises tariffs as a part of its overall inward-looking policy.

Trump’s aim will be to make America great for Americans, without much concern about what happens to the rest of the world. There will be a few attempts to corner China. In such a scenario, it is ideal for India to plan to export more goods and services to the US, which will lower import duties and ease regulations for incoming skilled workers.

The higher possibility right now is that India will manufacture more for its own consumers. Its skilled workers will not plan to seek entry for themselves and their wives into the US through H1B visas but look for well-paid jobs in global centres of multinationals in the country. Global companies will come to India to get their development jobs done here and make it a more skilled country. India will become a more powerful economy, but it will become more inwardly focused, thanks to Trump’s own inward-looking policies.

As against this somewhat negative perception of economic ties between the two countries, those taking a positive view are recalling that Trump had, during his first term, presided over a community summit termed “Howdy Modi” in Houston during Modi’s visit there. And the call, “Namaste Trump”, had been aired in Gujarat during Trump’s visit to India. Plus, Trump had called Modi “fantastic”.

As against this, Trump had also earlier expressed feelings that India was a trade abuser and engaged in being a “tariff king”. What it means is that this sentiment can change, depending on the mood and need of the day.

Those minding the Indian economy will have to wait for Trump to settle down in office and put behind his election rhetoric. Simultaneously, his administration will need to work out the details of his economic policy framework. Once this crystallises, the Indian policy framework will work out how best to live with the new times and, hopefully, make the best out of the scenario.

It is clear that high tariff barriers for goods will not be an issue as the gut feeling in India is to try to become more atmanirbhar. This is with the exception of India’s desire to play a key role in the manufacture of semiconductors.

The quicksand will be the export of services or skills. The best Indian engineers will continue to want to work in the US. But how many will be able to do so will depend on what the US administration will agree to in response to the negative pressures which will be created by the skilled workers’ unions.

Turning to the global scene, Indian strategists will argue that the US cannot entirely cease to remain the world policeman. The US administration will be forced to try and stop the wars raging in Ukraine and Palestine that Trump himself promised to do during his campaign. This will bring the US into the quagmire willy-nilly. It is Palestine which is likely to become the more intractable. Far more Jewish money went into the Democratic campaign as compared to that of the Republican Party. Simultaneously, there will be enormous pressure on the US to stop the killing of civilians in Palestine even as Israel works to get more resources to keep fighting the war.

India should not have too many problems as it already does a good bit of defence exports to Israel. It also continues to import substantial amounts of petroleum from Russia. Overall, global oil prices are likely to soften as Trump has signalled that the US oil industry will be able to go forward unabated.

So, despite what Indian liberals want, India is doing rather well even as the two wars continue.