Should Trump emerge as the 47th President of the US, as is highly likely, global geopolitical and geoeconomic conditions would swiftly change, given his economic policy plan announcements. This will impact India directly and indirectly through the global spillovers.
At a bilateral level, Trump has more than a working relationship with Prime Minister Narendra Modi. This matters when it comes to staving off Chinese aggression along the Line of Actual Control, even if this warmth in personal relations between the two leaders had not prevented the Trump administration, in 2019, from excluding India from the list of countries given preferential access to the US market under the Generalised System of Preferences.
In a second presidential term, Trump has proposed to levy an import duty of 10% on all imports into the US, apart from 60% tariffs on those from China. The prospect of India being given any concessional treatment is remote, and India’s merchandise exports to the US are likely to shrink.
The likely fallout of Trump’s economic policy plans already has the world worried. After having promised to sack Jerome Powell as the head of the US Federal Reserve, in a recent interview, Trump said he would allow Powell to serve out his full term, provided he did the right thing.
The underlying message is clear: a Trump presidency would see the US Fed as an agency that submits to the Executive’s will or gets removed. The crumbling of the Fed’s institutional autonomy would erode its inflation-fighting ability. This will have implications for global financial markets, given that the Fed is the systemically most important central bank in the world.
Trump has also promised to slash the US corporate tax rate to 15% from the present level of 25%. This would push up the US fiscal deficit when it already is more than 7% of GDP and the US national debt is already $34.9 trillion, or 137% of GDP.
The fiscal deficit would add a demand-pull effect to the cost-push effect likely upon the ratcheting up of import tariffs, mounting upward pressure on prices. Any resurgence in inflation would induce the Fed to raise rates once again, dampening economic momentum.
Trump has discussed two more assaults on the US economy. One is to not just shut down illegal immigration but also to hunt down and deport undocumented immigrants living and working in the US.
The US economy has been powering along with some of the lowest levels of unemployment in recent history. Still, a crackdown on fresh supply of labour could make for a shortage of workers and push up wages, apart from creating distress among immigrant communities.
India would have to watch out because the Make America Great Again promise could potentially escalate into restrictions on the number of work visas, and make onshore delivery of India’s IT service exports difficult.
The other attack is to shut down the Biden administration’s climate change initiatives. Trump does not believe climate change is real, and believes that US emission reduction commitments shortchange the American coal, oil and gas industries, apart from the American public, to the unfair advantage of the Chinese and the Indians.
The Biden administration’s support, including production subsidies, for green technology research and deployment is key to innovating ways to remove carbon dioxide from the air. If that goes, the entire world would suffer, including India.
The net result of Trump’s economic choices would be to dampen US growth, and thereby US import demand, depressing global exports, and to raise the cost of capital, depressing direct investment flows to the developing world and inducing a flight of funds deployed in emerging markets back to the US. Lower availability of capital, shrinking export markets and restricted supplies of H-1B visas would hurt growth in an economy like India.
A phase of even greater uncertainty could be in the offing on the geopolitical front. Trump is inclined to isolationism, and is against involving Americans in forever wars abroad. He is in favour of ending the war in Ukraine by letting Russia have its way, and of giving Israel a free hand to finish its job of wiping out the Hamas, whatever the collateral damage in terms of Palestinian civilian lives. This could push these two wars to a swift, if bloody, conclusion, but set the stage for greater geopolitical tensions and new arms races in Asia and Europe.
While the isolationist streak would lead American foreign policy under Trump to give China greater degrees of freedom in the South China Sea, that has the potential for Chinese conflict with America’s treaty allies like the Philippines, drawing the US itself into the conflict.
If that does not pan out—that is, if the US does not honour its treaty obligation to defend an ally such as the Philippines—Japan and South Korea would feel obliged to seek non-treaty means of securing themselves. That could entail expectations from India to play a more active security role in the Indo-Pacific, apart from Japan and South Korea being forced to drop their opposition to nuclear weapons.
Trump’s commitment to NATO is suspect, and a second Trump presidency would hasten Europe’s efforts, led by President Emmanuel Macron of France, to create a mechanism of European security that does not depend on American firepower. The arms industry would gain.
In the trade-off between butter and guns, a Trump victory in the November US presidential elections could, thus, see guns gain, and ordinary people across the world having to tighten their belts.