Impact of US election 2024 result on India

The US election is probably the biggest event in the world right now. On November 5, the US will vote to elect its next President. It is a close contest between Democrat Kamala Harris and Republican Donald Trump. Harris has got a tiny lead over Trump nationwide, but the former president appears to be ahead in almost all the 7 swing states, as per major pollsters in the US. And winning in these states can be the differentiator for either candidate. The outcome of the election will influence the US foreign policy, trade agreements, defence strategies, global markets and this in turn will impact Indian economy too.

Trump has made it very clear to the world about his ‘America first’ policy focused on domestic growth, economic nationalism, and securing national borders. In his previous term, Trump government initiated a trade war with China and hiked tariff rates by 25% on $50 billion worth of commodities and by 10% on $200 billion worth of commodities imported from China. U.S. tariffs had a negative impact on the Chinese exporting firms who were unable to adjust their export prices and quickly divert sales to alternative markets, which led to declines in sales and profitability. Similar policy is expected from Trump if he comes to power. He will likely initiate a trade war — primarily with China (Trump has promised a higher 60% tariff on imports from China) but also with India (Trump has promised 10%-20% tariff on the rest of the world), whom he described on 17 September as a “very big abuser” of bilateral trade. However, he referred to PM Narendra Modi as a “fantastic man" later. As it did in 2019, the Indian government will respond to any US tariffs with tariffs on US exports, that will leave consumers in both India and the US worse off. US-centric trade policies may lead US pressuring India to reduce trade barriers or face tariffs. India’s IT, pharmaceuticals, textile, gems and jewellery sectors, which export significantly to the US, could be particularly impacted.

There is another aspect to US trade tariffs on China. If Trump imposes higher tariffs on China, then India might also have to increase tariffs on Chinese products to prevent an influx of cheap imports. Higher US inflation and higher Indian tariffs will all lead to inflation in India.

Some of the measures initiated by the Trump administration earlier makes the threat even more real for India.

• 2017: The “Buy American, Hire American” executive order makes it harder for foreigners — mostly Indians — to acquire H-1B work visas

• 2018: The Trump administration imposes tariffs of 10-25 per cent on Indian aluminium and steel, forcing India to impose retaliatory tariffs on 28 US products ranging from apples to nuts to chemicals.

• 2019: The Trump administration removes India from the Generalised System of Preferences (GSP) that resulted in significant tariff increases for Indian exports of textiles, apparel, leather goods, agricultural products etc. It affected US$6.3bn worth of Indian exports that previously enjoyed duty-free status.

However, things improved considerably during Joe Biden’s presidential tenure. India and the US resolved seven outstanding trade disputes covering trade in agricultural products, solar panels, steel and aluminium etc. Biden made it easier for Indian H-1B visa holders to renew their visas without leaving the US. And in January 2023, the US indicated it would consider restoring GSP benefits to Indian exports.

Trump’s policies potential impact-

• Inflationary - tariffs on imports would make foreign goods more expensive. Pushing companies to produce more in the US could also raise costs. Lowering tax rates for corporations, especially those manufacturing in the US
• Influence over the Fed – Trump has discussed increasing government’s influence over the Fed. Moreover, his policies could lead to higher interest rates, a strong US dollar and a slowdown in global growth.
• Interest rate impact - If interest rate cuts are delayed in the US, Foreign Investors flows into India might further dry up. Any delay in US rate cuts could also delay India’s repo rate cuts, prolonging pressures on the Indian economy.

On the other hand, Kamala Harris’ policies are largely status quo. She has indicated her preference for -

• Increasing spending through an increase in taxes on corporations and wealthy Americans and not raising taxes on anyone making less than $400,000
• Status quo on tariffs (continuing with the tariffs levied by Trump and Biden previously)
• Not influencing the Fed
• Taking steps to curb the inflow of incremental illegal immigrants (but not mass deportations)
• Continued support to Ukraine, NATO, Israel and Taiwan

So, except for her discomfort over India’s record trade with Russia in the context of the Ukraine war, Harris coming to power would not alter things significantly for Indian economy.

Immigration and H-1B visa policies is another area where Trump administration may make things difficult for India. A return to his restrictive policies, particularly regarding the H-1B visa programme, could complicate Indian workers’ access to American job markets, affecting sectors dependent on skilled Indian workers, particularly in technology. Indian IT firms may experience added cost pressures but are unlikely to see operational disruptions. Whereas, Harris-led Democratic administration favours expanding skilled worker visas, like H-1B. H-1B visa approval rates under Biden peaked at 98% in FY21, the highest in over a decade.

However, the Trump government might be favourable for global geopolitics, crude oil prices, defence technology and pharma. Merely a week before the US presidential election, Republican candidate Donald Trump emphasised his commitment to strengthening the “great partnership” between the US and India. His foreign policy promises to directly impact India’s economic and defence landscape. Following are some of the areas where India may benefit from a Trump-led administration-

• Alternate to Chinese production - Many argue that Trump’s push to reduce dependency on China by encouraging American companies to move their supply chains elsewhere could work in India’s favour. With favourable policies, it might open opportunities for India to replace Chinese imports and attract more US companies looking to diversify operations, boosting its economic prospects.
• Defence and security - Donald Trump’s stance on China aligns with India’s concerns, and defence cooperation would likely deepen under his leadership. His administration has previously strengthened the Quad, a security partnership between the US, India, Japan, and Australia, to counter Chinese influence in the Indo-Pacific. Additional joint military exercises, arms sales, and technology transfers could bolster India’s defence capabilities amid tensions with neighbouring countries like China and Pakistan. Even Kamala Harris has strong focus on strengthening Indo-Pacific partnerships to counterbalance China in South Asia through initiatives like INDUS-X. Biden and Harris emphasized technology transfer, co-production and integration of supply chains, and the co-production of GE engines for Tejas Mark-2 fighters. India’s Exports reached an all-time high of Rs 4,400 crore in FY24.
• Geopolitical influence - Donald Trump’s policies in South Asia could also affect India’s regional interests. While Trump has shown a willingness to work with Pakistan, he has insisted on accountability in counter-terrorism efforts, aligning with India’s security goals. Moreover, it may help in diffusing tensions and wars in Russia-Ukraine and the Middle East. If elected, Kamala Harris is likely to maintain the Biden administration’s multilateral, alliance-driven approach.
• Impact on oil prices - Trump favours expanding oil and gas drilling in US, which had led to an increase in US oil production by 36% between 2016 and 2019. Average crude prices during Trump’s regime (excluding covid year) were 25% lower than under Biden’s rule. His pro-oil stance, combined with attempts to ease geopolitical tensions, may help in reducing global oil prices, which could be beneficial for India's import-dependent energy sector. On the other hand, Harris’ policies are likely to align more with India’s push for renewable energy and reducing dependency on fossil fuels.