US plays Trump card: His return sparks fears of trade frictions with India

Donald Trump’s dramatic return as the 47th president of the United States may intensify trade frictions with India, yet could prove beneficial in the medium term as US companies look to diversify supply chains away from China.

 

Belying expectations of a tough fight, the Republican presidential candidate summarily defeated Democratic nominee and Vice President Kamala Harris. In his bid to reclaim White House after four years, Trump had won 277 electoral votes to Harris' 224 with several states yet to be counted.

 

Trump’s “America First” stance – that in part fuelled this emphatic victory -- is widely expected to prompt a wave of tariffs and incentives aimed at pulling US investment back home, a move that may adversely impact emerging economies like India.

 

 

In India, initial reactions at the currency and equity markets underscored both excitement and caution: While the rupee slipped 17 paise to an all-time low of 84.28 per dollar amid a rally in the US Dollar index, the BSE Sensex surged 902 points, or 1.13 per cent, to 80,378 and the Nifty 50 rose 271 points, or 1.12 per cent, to 24,484 despite foreign portfolio investors (FPIs) being net sellers. Globally, too, equity markets climbed and Wall Street's main indices soared to record highs amid anticipation of lower taxes and pro-business deregulation, even though tariff hikes could bring challenges in the form of higher deficit and inflation.

 

Trump’s return to power could also bring a fresh wave of scrutiny toward India. In October, he had cited it as the “biggest tariff charger” and has threatened reciprocal tariffs.

 

In his campaign, Trump proposed tariffs between 10-20 per cent on imports across the board, with a particularly steep 60 per cent levy on Chinese goods. India, as a major trading partner of the US, could face its own share of these adjustments, potentially altering the balance of trade, which remains in India’s favour with a surplus of $35.3 billion in FY24.

 

“Trump has some very well-professed ideas on trade. Certainly, he will oppose our high tariffs on many imported items,” said a former commerce secretary who had dealt with the earlier Trump administration. “E-commerce companies may push for greater market access, and medical device firms may press to end price control. However, Trump has a strategic sense of the relationship with India, beyond trade. So he will temper his actions accordingly on the trade front. He is unlikely to do anything abrupt or catastrophic.”

 

Richard Rossow, chair in India and emerging Asia economics at Center for Strategic and International Studies (CSIS), noted that while Trump will maintain strong ties with India on defence and Quad relations, trade frictions are almost inevitable. “I expect the administration will reduce pressure on India over human rights issues and its expanding support for Russia. But we will see a reduced interest in the US’ support for India’s ‘Make in India’ programme, and immigration, including of visiting students,” Rossow said.

 

India’s trade relationship with the US is pivotal, with America ranking as its largest merchandise trade partner and export destination. Trade between the two nations reached nearly $120 billion in FY24.

 

With Trump set to become US president in January next year, exports such as textiles, chemicals, and automotive parts may suffer. Agneshwar Sen, partner-tax and economic policy (international trade), EY India, said: “India will have to either find alternative markets, though this will be challenging, or consider retaliatory tariffs on US goods. Alternately, we must be ready for a trade deal that is attractive to the US, while not just protecting our current interests but creating newer ones.”

 

A September report by Nomura suggested that despite probable strains on trade and immigration, India could benefit from Trump’s policies that drive supply chain reconfigurations away from China. “India is largely a domestic demand-driven economy, so the negative growth spill-over from weaker US growth should be limited. On the contrary, lower commodity prices owing to the hit to China’s growth and lower oil prices, due to a greater push towards fossil fuels, could be a macro tailwind for India,” it said.

 

Brent crude, the global oil benchmark, on Wednesday fell 1.43 per cent to $74.45 per barrel in futures trade.

 

India, however, may face challenges under tighter US immigration policies. Indian nationals account for over 72 per cent of H-1B visas issued, and Trump’s hardline stance may raise costs and complicate workforce mobility for Indian tech companies. “This may hinder the movement of skilled Indian professionals, limiting opportunities for Indian firms in the US and complicating talent acquisition in the tech sector,” warned Ajay Srivastava, founder of the Global Trade Research Initiative.

 

Poorvi Chothani, founder of the immigration law firm LawQuest, noted that Trump previously attempted changes to H-1B wage determinations and the definition of specialty occupations, which were blocked by litigation. “(But) This time, with the Republicans almost in control of the Congress, he can introduce changes to the Immigration and Nationality Act. This shall change the very foundation of America’s immigration statute.”

 

Trump’s proposal to eliminate birthright citizenship for children born to non-citizens could further impact Indian H-1B visa holders, many of whom have families in the US.

 

If restrictions on visas are enacted, according to experts, some companies may expand their global capability centers (GCCs) in India. “American companies are dependent on Indian skillsets. This may actually make them relook at their India strategy,” said an industry leader requesting anonymity. 

  (With inputs from Sundar Sethuraman in Mumbai)