What Donald Trump’s return to the White House means for India

US elections 2024: Donald Trump’s return to the White House as the 47th President of the United States could pose at least some direct challenges for India, including higher tariffs and restrictions on visas, as well as possibly more volatility in the foreign exchange markets. Concerns are also emanating over higher inflation in the US following his fiscal stance and fewer cuts by the Federal Reserve, that may have an indirect impact on monetary policy decisions in other countries including India.

For now, it is still early days. Policymakers are on a wait and watch mode to see how Trump takes ahead his Presidency. The new US President’s economic policy is expected to focus on higher tariffs on all imports to the country – 10 per cent across the board, and as high as 60 per cent on those from China, restrictions on immigration as well as reduction of corporate tax rate to 15 per cent for all companies manufacturing in the US. All this could eventually fuel higher inflation in the US and subsequent action by the Federal Reserve.

India had already found a mention during Trump’s Presidential election campaign when he had termed the country as "an abuser" of import tariffs, a claim that echoed his October 2020 statement labelling India the ‘Tariff King’.

Experts believe India is unlikely to go unscathed and is likely to face higher tariffs, either directly or indirectly. Experts believe that the Trump presidency would likely extend tariffs beyond China to other countries, possibly including India.

“Trump may pressure India to cut tariffs and also impose higher tariffs on Indian goods, especially in sectors like automobiles, textiles, pharmaceuticals, and wines, which could make Indian exports less competitive in the US market, impacting revenue,” said a report by economic think tank Global Trade Research Initiative (GTRI).

The US is India’s top export partner with total exports of $77.5 billion in FY24 and total bilateral trade was about $120 billion.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services also pointed out that it is important to understand that even though Trump’s anti-China policy has positive implications for India, Trump has been critical of ‘India’s high tariffs’ and won’t hesitate to impose tariffs on India’s exports to the US.

However, there remains a counter-view that higher tariffs on Chinese goods could benefit India. Similarly, a focus on China+1 strategy could also boost Indian industry. The GTRI report noted that Trump’s reshoring goals may lead the US to reduce dependence on Chinese manufacturing, creating new openings for India to supply key products in sectors like semiconductors and electronics.

There also remain concerns about what Trump’s policies on the H-1B visa policy would be, that could have a significant impact on India’s IT sector. “Stricter policies on outsourcing and possible restrictions on H-1B visas could disrupt India’s IT sector, which relies heavily on the US market. Reduced outsourcing may affect earnings for Indian firms and complicate hiring skilled talent,” said the GTRI report.

Analysts also remain watchful about the impact of these policies on the US economy and global markets. While in the short run, these measures could lift US growth, in the medium to long term, they could lead to higher inflation as well as a possible slowdown of the Chinese economy which in turn would have a ripple effect.

“The medium-term implications are less straightforward. This is as tariffs hikes could be inflationary, negatively affecting consumer demand and hit US manufacturers dependent on global imports. Moreover, in the event of broader tariffs on all US imports — raising the risk of retaliation from other countries — global growth could slow down with economies like China and the Eurozone being especially vulnerable,” highlighted a report by HDFC Bank Treasury Research Desk.

Analysts also expect the Indian currency to weaken as the dollar becomes stronger. “The rupee to depreciate further towards a range of 84.20-84.50 over the next two to three months, before moving to 84.50-85 in the first half of 2025. We do not rule out an eventual breach of the 85.0 level over the next 8-12 months for the pair,” said the report.

A report by Emkay Global Financial Services also said there will be natural weakening bias for Indian Rupee, led by CNY, while mild Gsec bear-flattening may make a comeback. “The spillover of bond/FX volatility via the global financial markets route would mean the aim of financial stability may even precede inflation management for the Reserve Bank of India,” it said.