By: Samarveer Singh; Edited by: Parisa Chatrath
Introduction
Donald Trump, the former President, is set to return for another term at the Oval Office, dubbed as one of the greatest political comebacks in American electoral history. The President-elect has garnered 301 electoral votes and now has the majority to win the White House race. The exit polls had predicted a tight race between Kamala Harris and Donald Trump, however, Trump has triumphed over Kamala in shocking results. Prime Minister Modi was one of the early world leaders to congratulate Trump for his victory in the US elections calling him a “friend”. However, it remains to be seen how this claimed friendship will impact the US-India relationship, particularly in the sense of economic relations.
Trump has always followed a protectionist policy in terms of trade and has advocated for his “America First” policy. Will Trump 2.0 improve the relations between our nations or spell trouble for India? Let’s delve into the topic to gain a better understanding!
The Trump administration is likely to implement more US-centric trade measures, requiring India to lower its trade restrictions. This will significantly impact India’s relationship with the US which is its second largest trading partner. However, a twist in Trump’s trade policy with India could be his commitment to the “China+1” strategy aimed at diversifying supply chains away from China to countries like India.
The rupee hit a record low of rupees 84.31, on the day Donald Trump won the US elections indicating that the forex markets do not have a good feeling about Trump’s presidency. This is evident as Trump’s policies to reduce inflation in the American economy will increase the demand for dollars thereby depreciating the value of the Indian Rupee, which remains a key concern for the RBI and the Indian government.
Trump’s policies on the H-1B visa policy could also upset the Indian community in America as well as the Indians who are willing to work abroad in the USA. Trump vowed to stronger regulations and increased scrutiny of applications, which could lead to fewer applications by Indian students impacting their future plans in the country.
Will Trump’s return benefit Indian exports?
Trump’s return to the White House could have a multifaceted impact on the Indian economy. While campaigning for elections, he had vowed to slap more than 60% tariffs on Chinese imports, this move will significantly benefit India’s exports to the US. The competitiveness for Indian exports will increase in the US market especially the products of Agro and Pharmaceuticals industries. Trump’s tariff move is also likely to affect US companies manufacturing goods in China, which are then likely to shift their production to countries like India. India stands to be a viable option for American companies as it houses a strong population with low-cost labour and software companies that are doing well. Many US companies might also shift their semiconductor manufacturing to India to benefit from low-cost manufacturing in the country. Apart from the pharmaceutical sector, other sectors such as the textile and tile sector could see increased demand under the Trump administration as Trump’s tariffs will force consumers to look for alternative options in the market.
India-US trade in Trump’s first presidency
The above graph depicts India’s history of trade with the US under the Trump administration’s first term (2016-2020). In Donald Trump’s first presidency, total trade between the US and India increased significantly in favor of India. For the first three years of Trump’s tenure, the average trade between both countries stood at $83 billion. The average trade surplus for the first three fiscal years in Trump’s presidency also stood at $18.46 billion which even grew to $19.53 billion in the pandemic year 2019-2020. The above graph also depicts that India’s exports to the US also grew from $42.21 billion to $53.08 billion in Trump’s years and have since grown in numbers. The numbers above reflect Trump's past performance which is a culmination of his protectionist policies, a prime example of the same is his regimen of raising tariffs on Chinese exports. If he continues to raise tariffs on China in his current term, India can firmly expect to benefit from Trump 2.0. However, since Trump has called India a “trade abuser” in many of his campaigns in this election, it is difficult to predict whether Trump will agree to PM Modi's tweeted vows of friendship when it comes to trade policy.
Rupee to fall further?
US Dollar- Indian Rupee Exchange rate
As it is known to everyone who engages with the forex markets, the Indian rupee has not been performing well in the past few months given the global headwinds such as the Israel-Iran tensions, spike in oil prices, US cutting interest rates, etc. The Indian currency might experience a further fall in its value after Trump’s election to the White House. As discussed in the article, Trump’s economic policies for the US involve an increase in expenditure, which along with measures like higher tariffs on imported goods is likely to push up inflation in the country and if this is the case then the value of the dollar will appreciate. The Indian rupee fell to an all-time low on the 8th of November to 84.37 against the dollar. Foreign Institutional investments (FIIs) are also decreasing due to an appreciation in dollar. Since one of Trump’s main goals is to strengthen the dollar more, the currency is expected to appreciate in future. Foreign investors in October alone have pulled out massive amounts of money from Indian stock markets amounting to about 94,000 crore rupees making it the worst-ever month in terms of capital outflows. The graph above also shows that the dollar has appreciated since the announcement of Donald Trump winning the elections. Therefore, it seems evident that a Trump presidency will vouch for a stronger dollar resulting in a further downward spiral for the Indian rupee. The depreciation of the Indian rupee will further spell troubles for the economy as India’s energy needs (crude oil) are largely imported from abroad (more than 85% of crude oil is imported). The depreciation will lead to higher costs in importing oil and as the good is inelastic, India will have to pay higher costs for imports. However, the Indian forex reserves which hover around more than $600 billion will help put India in a comfortable position and sustain higher costs of oil imports. Thus, it does not seem to be an immediate threat.
Indian community might feel the heat
Trump’s economic policies on immigration, H-1B visas, and citizenship are set to impact India’s large diaspora in the US. Indian Americans are also particularly important to the Indian economy as they send back billions of dollars as remittances back to India each year. The US is also one of the top potential working spaces for many Indians who are looking for jobs abroad. You might as well be looking for further studies in the US and plan on working there. Donald Trump’s election to the White House is also expected to impact you significantly as well. During his first tenure, Trump had made efforts to increase scrutiny of applications for the H-1B visa program. In the upcoming year, there is a possibility that the number of H-1B visas that are issued might be reduced and a cap system put in place to favour those with specialised skills. The Indian diaspora in America is one of the largest, evident by the fact that one of their presidential candidates was an Indian-American. If a cap system is put in place, it will become increasingly difficult for Indians to settle in the US. However, the Indian economy might also benefit from this measure as Indian professionals living abroad will migrate back to India bringing with them specialised skills from Silicon Valley and knowledge from the US markets which will help revolutionise startup culture in Indian cities.
In addition to changing the H-1B visa rules, Donald Trump has promised to undertake a historic decision in America. He plans to change the rules of citizenship in the US. According to the current rules of citizenship in the US, a person can claim to be a US citizen if he is born on US soil. Trump’s plan suggests no system of automatic citizenship for children born in the US. The order proposed by Trump suggests that it will require US federal agencies that one of the parents of the child be a US citizen or lawful permanent resident for their children to become US citizens automatically. The US is home to 4.8 million Indian Americans out of which only 34% were born in the country. If the order is passed, it could spell big trouble for the future children of these communities as many Indians working in the US are on working visas and thus if their child is even born on US soil, it will not make them an automatic US citizen.
Conclusion
Donald Trump’s stunning return to the White House has set alarming bells across the world both allies and foes, promising a seismic shift in America’s economic policy. India also braces for surprises and awaits what a Trump 2.0 brings for the country. On one hand, his ‘America First’ strategy and potential tightening of immigration policies could pose significant challenges for Indian professionals and students aiming for future opportunities in the US. On the other hand, his hardline approach against China could open the doors for India to bolster its exports and attract American companies to set up their operations in the country.
However, stakes are high for the Indian rupee as a stronger dollar under Trump’s fiscal policies threatens to devalue the rupee further creating volatility in the forex markets and impacting foreign investment. The road ahead is uncertain but one thing is clear: Trump’s return to the White House will redefine the US-India relationship with a complex landscape of both challenges and opportunities in the years to come.
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