After a tense election period, Donald Trump is back in power as the 47th president of the United States of America. His momentous victory is expected to usher in some key changes in the political and economic landscape of the country. Trump’s win is also predicted to have far-reaching repercussions on the global markets, including India’s.
The new president plans to adopt different trade and economic strategies from his predecessor, President Joe Biden. Following his win, the immediate effects on India’s equity market proved to be positive, with the BSE Sensex and NSE Nifty 50 indices witnessing 1% growth.
Trump’s policies plan to focus on growing the US’s GDP and boosting economic activity. This could have a positive ripple effect on emerging economies and a number of other countries, including India, which has been a significant exporter of jewelry, pharmaceuticals, and information technology services.
In 2024, India’s exports to the US reached USD 54.7 billion by August. This may make India a target for tariffs due to trade surplus. In this article, we explore the expected changes that Donald Trump’s victory is predicted to have on India’s economy in the upcoming years.
The Effects of Trump’s Victory in the US
Similar to his previous term, Donald Trump’s current administration is focused heavily on accelerating the growth of America’s GDP. His policies aim to maintain lower corporate tax rates, reduce regulatory burdens, and relax environmental regulations.
There have also been concerns surrounding the inflationary impacts of these tariffs. However, these concerns may be overstated, as the current import-to-GDP ratio of 12% is unlikely to significantly impact inflation. His policies related to curbing spending on domestic welfare programs and other international commitments could strengthen America’s fiscal discipline and improve its public finances in the long term. This could also reduce fiscal deficits.
GDP growth may be achieved through aggressive trade negotiations, the threat of higher import tariffs reduced spending on welfare programs and international engagements, and more. In the past, Trump used tariffs as a bargaining and negotiation tool to secure trade agreements favouring the US, which may continue. Lower fiscal deficits and reduced inflation could also cause interest rates to decrease at faster rates. His focus on lowering corporate taxes could lead to higher earnings, increasing shareholder values and corporate investments.
Trump’s administration also introduces stricter immigration policies and deports illegal immigrants. This could potentially increase job opportunities for American citizens, raise minimum wage rates, reduce unemployment, and strengthen domestic labour. With lower inflation and GDP growth, the country can expect to see greater consumer spending, ultimately resulting in a healthier economy.
How does Trump’s Win Affect India?
1. Strategic partnerships and trade
In the past, India and the US have had several trade disputes, particularly during the earlier Trump administration. During this period, the US placed several tariffs on aluminium and steel, and India faced a loss in its preferential status under the Generalized System of Preferences. India’s Prime Minister, Narendra Modi, frequently boasts of warm ties with Trump. Despite Trump’s critique of India’s trade policies, he has referred to Modi as “fantastic” during his campaigns. India’s PM was also one of the first world leaders to speak to the new US President after his second win.
It remains to be seen how Trump’s Indo-Pacific policy plays out in the future. Trump has been vociferous about stopping the war in Ukraine and the middle east, in his previous term he championed the removal of American troops from Afghanistan. Many of these things also play in favor of India, opening multiple opportunities for trade.
2. Increased foreign investment
A major impact of Trump’s victory could be an influx of foreign portfolio investments (FPIs) to India. FPIs are foreign entities that invest in tradeable and liquid assets, like bonds and equities. These investments typically have shorter horizons.
According to Manish Bhandari, the Founder and CEO of Vallum Capital Advisors, Trump’s presidency has made experts look forward to a preference for trade with India and a reversal of recent negative FPIs. The US also views India as a strategic partner and counterweight against China, and India sees the US as an important ally in terms of economic growth.
There may also be an increase and expansion in exports involving pharmaceuticals and IT services, as well as opportunities in tech and defense. Swapnil Aggarwal, the director of VSRK Capital, states that Donald Trump’s re-election could benefit the defense, manufacturing, and energy sectors and present new opportunities for investors.
Additionally, the Trump administration’s pro-fossil fuel policies could lower energy costs, which would benefit Indian oil and gas companies.
3. US-China relations and its impact on India
Trump views China as a security threat, potentially strengthening India’s global supply chain position. Nomura’s analysis shows that India is at the forefront as global supply chains shift away from China. This is enhanced due to India’s large domestic consumer market and focus on domestic manufacturing.
Aggarwal added that Indian manufacturers could benefit and gain a boost in US markets if Trump reimplements high tariffs on Chinese products. There may also be a boost in solar equipment, chemicals, and auto parts industries. Mutual funds that invest in these industries could witness a positive impact, making them attractive investment options.
4. Energy and Oil: Lower Prices
Trump’s pro-oil policies, if re-elected, could keep global oil prices relatively lower, which is a positive for India given its heavy reliance on oil imports. Lower crude prices would reduce India’s import bill and help control inflation. This could also slow down India’s shift to renewable energy as the pressure on fuel imports eases.
5. Defence and Manufacturing: New Opportunities?
Trump has been supportive of stronger defense ties with India, and if re-elected, the Indian defense sector may continue to benefit. His policies also favour localised manufacturing, which might encourage US-India partnerships in the production of defense goods. Indian subsidiaries of multinational corporations might gain as Trump’s policies further weaken China’s manufacturing hold, potentially helping India position itself as an alternative.
6. Long-term Volatility
Trump had also referred to India as the “tariff king” earlier. However, the two countries have worked towards forming more robust trade and economic relationships, supported by the Modi-Trump alliance. Global financial services group Nomura predicted that India may benefit from Trump’s policies thanks to its high domestic-demand growth model and a shift in global supply chains.
Additionally, India has stated that it is willing to lower tariffs and offer easier market access for the US if Washington reciprocates. Lower tariffs could make the entry of US companies into India easier and improve trade terms. According to Harsh Vardhan Shringla, India’s ambassador to Washington during Trump’s first presidency, his second term is projected to be better for India due to better mutual understanding and respect between the two countries’ leaders.
While the initial months of a Trump win may bring volatility, the long-term effects are complex. On one hand, the promise of business-friendly policies could create positive momentum, but trade tensions and potential new tariffs might lead to market uncertainties. For Indian markets, this could mean a rollercoaster of opportunities and challenges depending on Trump’s approach to trade.
In conclusion
While it is difficult to pinpoint precisely how the Trump administration could affect American and global politics and economies, his current policies bring new opportunities and risks. However, experts have predicted that Trump’s presidency could be beneficial for India’s equity markets, GDP, and overall trade. To stay up to date on the latest events in the financial world, follow the Tata Capital Blog.
08 November 2024
7 mins read
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