A Win with Global Spiral Effect

Trump's triumph may signify several changes for various critical economies.

The re-election of Donald Trump as President of the world's largest economy, which constitutes over a quarter of global GDP, may result in numerous changes, some of which could be adverse for other significant economies, including India. This would signify a resurgence of growing trade conflicts, a perpetuation of economic protectionism, a rejection of multilateralism, and the imposition of immigration restrictions into the U.S., potentially impeding India's IT services sector.

The United States is India's second largest trading partner, representing $118.3 billion in the most recent fiscal year. However, to Mr. Trump’s chagrin, it is the sole nation with which India maintains a trade surplus ($36.74 billion during the same period) among its top five trading partners.

Although the U.S. considers India one of its top 10 economic partners, exports to India constitute less than 3% of the total. Significantly, the United States has continued to be the predominant provider of Foreign Direct Investment for India, amounting to $103 billion in the previous fiscal year.

The significance of these figures has increased with Mr. Trump's return, as concerns reemerge regarding his emphasis on bilateral trade and the potential evasion of agreements established through the World Trade Organisation (WTO), exemplified by his unilateral imposition of import tariffs on aluminium and steel in 2018, which impacted numerous countries, including India. In 2019, India sought to respond by imposing increased taxes on agricultural products such as apples and walnuts, but ultimately did not execute its threat.

Despite India being regarded as one of the top 10 economic partners of the U.S., exports to India represent less than 3% of the total. The United States remains the leading source of Foreign Direct Investment for India, totalling $103 billion in the last fiscal year.

The importance of these figures has grown with Mr. Trump's return, as concerns resurface about his focus on bilateral trade and the possible circumvention of agreements set by the World Trade Organisation (WTO). This is illustrated by his unilateral imposition of import tariffs on aluminium and steel in 2018, which affected several countries, including India. In 2019, India aimed to address the situation by proposing higher taxes on agricultural products, including apples and walnuts; however, it ultimately did not implement this measure.

The most significant impact is expected to be on China, which has been the largest trading partner of the U.S. for decades, recording a surplus exceeding $380 billion in 2022, as reported by the office of the U.S. Trade Representative. Mr. Trump would promptly address this surplus; however, this action occurs amidst a struggling Chinese economy, characterised by a downturn in the property market and a general growth decline. Consequently, the People’s Bank of China recently reduced interest rates in September to improve liquidity and facilitate lending.

China is exploring alternative markets for its exports; however, it encounters significant resistance for various products, including electric vehicles in the European Union and iron and steel in India.

Mr. Trump’s return could impact various sectors in India, including generic pharmaceuticals and information technology services. A significant issue is the potential reinstatement of restrictions on the highly skilled worker programs, specifically the H1B and L1 visa categories, implemented by Mr. Trump during his initial term. Denial rates for Indian IT professionals applying for H1B visas increased during the Trump administration, prompting companies like Infosys to employ approximately 10,000 American workers. Infosys referred to it as a “strategic human asset investment,” yet the influence of the U.S. government's efforts to tighten immigration was evident.

Mr. Trump’s return could impact various sectors in India, including generic pharmaceuticals and information technology services. A significant issue is the potential reinstatement of restrictions on the highly skilled worker programs, specifically the H1B and L1 visa categories, implemented by Mr. Trump during his initial term. Denial rates for Indian IT professionals applying for H1B visas increased during the Trump administration, prompting companies like Infosys to employ approximately 10,000 American workers. Infosys referred to it as a “strategic human asset investment,” yet the influence of the U.S. government's efforts to tighten immigration was evident.