11

Nov

 Tariff Cuts : An Uncertain Delhi Watches As Trump Enters White House

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Prof Shivaji Sarkar

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New Delhi | Monday | 11 November 2024

The world is  shaken and is in a trance with Donald Trump’s return to the US presidency. There is hope,  anxiety and speculations about a changing world. Nobody knows the reality but uncertainties  rock. With Trump in White House would it be a stable or turbulent India?

A lot many Indians are celebrating his victory against Kamla Harris, who possibly lost because she is woman rather than for any other major reason. Not surprisingly, Indians obsessed with Trump, who exceeded limits of decency, in use of words and even a ‘B….’ word are rejoicing. In fact, an Indian newspaper headline was eloquent or jocular as its banner blared “Kamala Harris”, an intended pun may be to express the happiness that she was destined to lose. ‘Harris’ in Hindi and some other Indian languages means defeat. So, an unsober person gets the support against a dignified woman, whose Indian origin did not enamour Indians either in the US or India.

Would Trump, supposedly ‘friend’ of India, spread out the red carpet for India? Does India matter much for the US, strategically or economically?

The US is India’s export partner with total exports of $77.5 billion in FY24 and total bilateral trade was about $120 billion. Obviously, this balance of trade in favour of India spurs the US to counter balance it.

 

Article at a Glance

Donald Trump's return to the U.S. presidency has sparked mixed reactions in India, with many celebrating his victory over Kamala Harris, despite concerns over his controversial rhetoric.

The relationship between India and the U.S. is complex, with India being a significant trading partner, exporting $77.5 billion in goods in FY24. However, Trump has criticized India's trade policies, labelling it a "Tariff King," which could lead to increased tensions and potential trade renegotiations.

While Trump's protectionist "America First" policy may impact Indian exports in sectors like pharmaceuticals and textiles, there are opportunities as India positions itself as an alternative supplier to China.

Additionally, Trump's unpredictable stance on defense and immigration could pose challenges for Indian professionals in the U.S. Despite uncertainties, high-profile diplomatic engagements may strengthen U.S.-India ties, fostering cooperation in various sectors.

 

Trump has often criticized India's trade policies for creating barriers to American products, framing them as unfairly protectionist. During his previous term, Trump argued that India imposes some of the highest tariffs in the world, pointing to examples such as the 100 percent tariff on Harley-Davidson motorcycles, though it was later reduced by Prime Minister Narendra Modi.

He calls India “an abuser” of import tariffs, a claim that echoed his October 2020 statement labelling India the ‘Tariff King’. It seems to signify potential India and US-India trade tensions, the emphasis is on renegotiating trade terms.

The new US President’s economic policy is expected to focus on higher tariffs on all imports – 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.

 For India, it could impact key export sectors such as pharmaceuticals, textiles, and IT services. This may affect sectors where India has maintained high tariffs to protect domestic industries, such as agriculture and manufacturing. This is a highly sensitive issue for the Indian policy makers. The NDA government has taken conscience steps to ensure protection for the domestic industry, agriculture and other sectors. The IT companies, like TCS, Infosys, and Wipro, rely heavily on the U.S. for both revenue and talent deployment. “It could make Indian exports less competitive in the US market, impacting revenue,” says a report by economic think tank Global Trade Research Initiative (GTRI).

It may hit China the most being the largest US trade partner. Many Indians believe that Indian exporters could benefit from the vacuum created as they also expect to fill the Bangladesh garment export fall by 6.2 percent. The expectations may not be a reality, as the US itself strives to be a manufacturing hub, which is termed “America First”. Besides, if new tariff regime begins it may require intense effort and allowing concessions for increasing Indian exports.

While the barriers are high, apart from government’s diplomacy, some large companies are already in touch with the Trump coterie for mollifying the issues as they are keen on setting up new ventures in the US or with US companies.

His previous immigration policies affected Indian professionals, especially those reliant on H-1B visas. Stricter immigration controls may hinder the mobility of Indian IT workers and engineers to the U.S., posing potential challenges for the Indian tech industry.  The IT companies are giving preference to indigenous US workers. It reduces opportunities for new entrants.

India’s leading status as generic drugs exporter to the US could be hit with new regulatory hurdles and tariffs, impacting companies like Sun Pharma and Dr Reddy’s. Additionally, India’s steel and aluminium industries may suffer if Trump reinstates tariffs on these metals, as he did during his previous term. His preference for fossil fuels and his resistance to international climate commitments could discourage joint US-India investments in renewable energy, a priority for India. It could impact Indian solar and renewable energy companies.

Trump’s support for India in defence and security matters is unpredictable. His prior attempts to mediate between India and Pakistan on issues like Kashmir created unease in New Delhi, which values its autonomy in regional matters. Possibly sensing this China entered into a border agreement with India after four years of logjam.

An Indian concern is that West Asia war zone extends to Iran now. India is simultaneously developing ties with Taliban in Afghanistan.

The recent rate cut by the US Fed Reserve and latest presidential polls have disturbed Indian stock markets, which continue to fall. Along with this, rupee parity with dollar touches new lows with a one-day fall of 21 paise to Rs 84.30 on November 6 and further decline to Rs 84.38 on November 8. It may go down to Rs 85, the market says.

There are also positive aspects in the US-India relationships, which Trump ensured earlier too. His personal equation with Prime Minister Narendra Modi had warmed up the ties. It is expected that high profile events like Howdy Modi in Houston and Namaste Trump at Ahmedabad would be repeated to cement the public engagements, personal diplomacy and strengthen people-to-people ties.

Indian exports and trade with the U.S. might increase under Donald Trump for several reasons, despite his protectionist “America First” stance. India, with its growing manufacturing sector and cost advantages, emerged as potential alternative to China for certain goods. If Trump continues to push for decoupling from China, India could benefit by positioning itself as a substitute supplier in many areas including semi-conductors.

Despite many issues, it is expected that US firms moving away from China could set up shops in India. Some like the Ford is setting up 200,000 vehicle manufacturing unit in Chennai for exports. McDonald is also expanding.

Ups and downs apart. India and US are likely to have better ties for strategic reasons by engaging in intense negotiations also to end proposed sanctions against 19 Indian companies.

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