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regular-article-logo Tuesday, 05 November 2024

India-US trade ties could turn fraught after presidential elections, tariffs likely to rise

Analysts predict a challenging environment, regardless of which candidate — Kamala Harris or Donald Trump — takes office. They warn tariffs are likely to rise and a more insular Washington can hinder foreign investment and reverberate across India's economic landscape

R. Suryamurthy New Delhi Published 04.11.24, 11:13 AM
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India's trade relationship with the US stands at a crossroad as the US presidential elections draw near.

Analysts predict a challenging environment, regardless of which candidate — Kamala Harris or Donald Trump — takes office. They warn tariffs are likely to rise and a more insular Washington can hinder foreign investment and reverberate across India's economic landscape

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“There’s a strong chance of reviving a limited trade deal with the US under Trump,” said Ram Singh, professor and head at the Indian Institute of Foreign Trade.

“Trump has historically aligned with India on initiatives such as the Quad and defence deals and has supported skilled-worker visas, unlike Democrats. But his aggressive approach on market access, high tariffs, and economic sanctions could pose global trade challenges, including India.”

He noted Harris might favour a more liberal approach despite the Biden administration's mixed legacy on India.

Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO), highlighted Trump’s “America First” agenda previously emphasised domestic manufacturing and tough trade policies, particularly targeting China.

“A second Trump term could see further acceleration of the ‘China-plus-one’ strategy, benefiting India as US firms seek alternatives to Chinese suppliers,” Sahai said.

He added that while Trump values India’s role in countering China, his emphasis on balanced trade might lead to tariff disputes. “If Kamala Harris wins, she may pursue a more collaborative strategy, focusing on climate, clean energy, digital technology and healthcare partnerships with India.”

Ajay Srivastava, co-founder of Global Trade Research Initiative (GTRI), noted that US reindustrialisation efforts will likely continue regardless of the election outcome. “The US is expected to maintain high tariffs on Chinese imports and sustain industrial subsidies,” he said.

“A Trump win could amplify these measures, possibly expanding tariffs to other countries, including India, as part of an industrial protectionist stance.”

According to Biswajit Dhar, distinguished professor at the Council for Social Development, both candidates are likely to favour higher tariffs, albeit for different reasons.

“Whether it’s Trump’s ‘Make America Great Again’ or the Biden administration’s industrial policy, both paths lead to higher tariffs,” he said.

Immigration policies could also affect India’s tech sector, Dhar added as both candidates have expressed strong views on limiting foreign labor.

“The US remains a crucial trade partner for India, yet we lack formal trade agreements that can bring predictability to our exchanges,” noted Arpita Mukherjee of the Indian Council for Research on International Economic Relations (Icrier), adding that protectionist policies from either side could hinder economic growth.

She said India has positioned itself as a “trusted partner and an alternative to China,” a stance that either candidate’s policies could compromise.

Shilan Shah, deputy chief emerging markets economist at Capital Economics, said a Harris administration would likely continue the Biden-era trend of dividing the global economy into US-and China-led blocs.

“This could create ‘friendshoring’ opportunities for emerging markets aligned with the US, like India, Mexico, and Southeast Asia,” Shah said. He added that a Harris presidency would probably work to curb China’s technological access, potentially benefiting India as firms look to move production outside of China.

Trump’s track record on trade includes imposing tariffs on about 2.3 per cent of India’s exports in 2017, leading to a 46 per cent drop in India’s steel exports within a year.

In 2019, he removed India from the Generalized System of Preferences (GSP), impacting $5.6 billion in exports.

A Harris administration, on the other hand, might ease some of the tensions surrounding immigration and trade, presenting new opportunities for India.

“As a Democrat, Harris could be less protectionist than Trump, which would be a boon for India’s IT industry and skilled workforce,” Shah said. Her administration may take a liberal stance on H-1B visas, supporting talent flows that are crucial for India’s technology sector.

The broader implications of a second Trump presidency could reverberate through global markets, with higher trade barriers potentially fueling US inflation and lifting treasury yields.

“Such a scenario could weigh heavily on emerging markets, putting easing cycles at risk and increasing currency pressure on vulnerable economies such as Argentina and Turkey,” Shah added.

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