P Chidambaram writes: The Trump effect on India

Trump, the mercantilist

Let’s look at the core beliefs of Mr Trump. We know he is a mercantilist and believes that high tariffs alone can protect American interests. He has threatened to impose high tariffs on imported goods, especially from China. The U.S.’s trade deficit with China under the Biden Administration was USD 352 billion (2021), USD 382 billion (2022) USD 279 billion (2023) and USD 217 billion (until September 2024). The U.S.’s affluent population needs large quantities of China’s merchandise, clothing, electronics and machinery. High tariffs will increase costs to American industry and consumers, inflation will rise, and the U.S. Fed will increase the policy interest rate that it had cut twice this year. At the other end, China must continue to produce the goods in order to maintain employment. U.S. tariffs will cause China to ‘dump’ goods on other countries. India has already the highest number of anti-dumping duties on Chinese goods. High U.S. tariffs may trigger retaliatory tariffs and have consequences for world trade.

Few people in the U.S. talk about the fiscal deficit in the way that India and other countries are concerned about containing the fiscal deficit. The reason is that America easily finances its deficit because other countries — including China — buy U.S. Treasury bonds. China owns about USD 1170 billion of the total U.S. national debt of USD 21,000 billion. But if the U.S.’s fiscal deficit rises it will trigger inflation. Consequential higher interest rates will reverse the flow of capital and developing countries like India will witness outflow of funds. Against a stronger dollar, the Indian rupee will lose value.

Trump, the protectionist

Mr Trump has promised to bring the factories back to the United States. He may give large incentives to American industry to locate their factories in the U.S. and that will dampen foreign direct investment. If businesses still wish to locate their factories abroad, Mr Trump may impose restrictions on export of technology. Mr Trump has, in the past, accused India of imposing high tariffs on American goods and of being a ‘currency manipulator’. Whether the ‘dosti’ between Mr Trump and Mr Modi will soften his attitude to India, and make an exception for India, is a moot question.

The other grave issue is alleged ‘illegal’ immigration on which Mr Trump blames everything from unemployment to crime to drugs. Mr Trump has promised to forcibly deport up to one million illegal immigrants in the first 100 days. He has picked a hardliner, Mr Tom Homan, to be in charge of ‘all Deportation of Illegal Aliens’. How many Indians will be deported is not known, but some will be, and that will have a fall-out on India-U.S. relations. Mr Trump may also tighten the regulations on acquiring H1B1 visas although U.S. industry, universities and the healthcare system would like more qualified Indians to re-locate in the U.S. and eventually become U.S. citizens. If Mr Trump holds firm and U.S. employers also hold firm, it will be a case of an irresistible force meeting an immoveable block.

Trump, the climate sceptic

A Trump presidency will have profound consequences for the oil and pharmaceutical industries. Mr Trump has nominated Mr Chris Wright to be the Energy Secretary. Mr Wright is a strong votary of fracking and drilling, and denies there is a climate crisis. The COP talks on Climate Change may not collapse but may suffer a serious setback. India’s present position is that it supports the effort of COP but wants the pace to slow down, and this may happen. On the pharmaceutical front, pharma stocks have risen in the U.S. in anticipation of lesser regulation and higher prices. Prices of drugs will rise around the world and will be a drag on our effort to universalize healthcare.

Finally, what will be Mr Trump’s attitude toward the two wars that are killing dozens of innocent people every day and destroying critical infrastructure like schools and hospitals? Mr Trump has promised to “stop wars”, but he has not spelt out what he will do. His past record and pronouncements indicate that he will support Israel. He may pressure Mr Zelenskyy to conclude a deal with Russia. Any rash step will have consequences and there is no certainty that either war will end and lead to durable peace. On the contrary, if the wars intensified, supply chains will be further disrupted and gravely affect developing countries.

Mr Trump’s ‘Make America Great Again’ is not likely to make the planet a better or safer or more prosperous place. It is, according to Mr Trump, in America’s self-interest. The results of the American elections proved it is in Mr Trump’s self-interest too.