Trump’s policies are likely to create ripples across economies, including India

The fireworks have started, even before people across the globe have ushered in Christmas and New Year’s festivities. The Trump presidency 2.0 could be a game changer, potentially recalibrating several global geopolitical and economic partnerships. First, the Biden era days of strategic partnership with nations worldwide would be replaced with a more transactional approach which President Trump in his second stint is likely to institutionalise. Even before taking charge, President-elect Donald Trump has vociferously spelt out his tariff-based external affairs policy.

He had during campaigning talked about imposing nearly 60 per cent tariffs on China imports. Recently he has said that one of the first executive orders, he is likely to sign after assuming office on January 20, would be to impose tariffs on Canada, Mexico and China imports. Of course, the caveat is, unless, they stop sending illegal immigrants and ban drugs across to the US. Donald Trump knows his tariff-based foreign policy approach has bipartisan support among Democrats and Republicans. It feeds well into his Made in America, local job creation narrative which catapulted him back to the White House in a non-consecutive term. India is overseeing this space, as it knows very well that even though the first tariff bullets may not be fired at India, eventually many will. Mr Trump has already spoken about India’s high tariffs in his election rallies and notwithstanding the amount of good, the Indian IT services sector has done for the US, he needs to send home hard messages. The only saving grace in the upcoming US-India bilateral relationship, under President Trump 2.0 would be the personal equation, the president-elect has with Prime Minister Modi. Knowing each other for a long period and having observed each other’s style of governing, can be an initial advantage but not a long-term solution. Key Indian trade interlocutors are in high demand, especially those who have been in government during Trump’s first presidency.

At some point in time, the issue of tariffs would come up in the bilateral conversations, where hard-nosed negotiations may be required. India and US under the Biden administration managed to establish a formal institutional framework for settling trade and tariff issues in the form of a Trade Policy Forum (TPF). The TPF platform provides trade representatives from the US and India to meet regularly to discuss and find solutions to mutual areas of concern. To be sure the TPF mechanism existed even under the Trump administration, but with one meeting and a new Indian government under Prime Minister Modi (with less focus on trade and external affairs policy), it served little purpose. Chances are, given Donald Trump’s style of functioning, the TPF may be relegated to the background and several transactional bilateral meetings would be formatted to, minimise the friction in the trade relations.

It may be worth noting that India has a trade surplus with the US, a point Mr Trump will keep in mind to extract his side of the deal. Meanwhile, the expected tightening of the trade environment between the US and China would have a significant impact on the global economy. China would have to find newer markets to push some of the goods, which could be too expensive to export to the US. India and its neighbouring nations would have to brace up. Prices of items in the US, most of which are imported from China could add an extra burden on household budgets, which in turn could push rate hikes.

These global headwinds will shape, the narratives for a long time to come. It could have an inflationary impact on global oil prices and growth of the several global economies. India’s Reserve Bank has already cautioned that the slowdown in the global economy, protectionism, and tariffs are three key factors that will shape India’s economy next year. It would be another tightrope with clever hands of the juggler on rope which can carry India for the next few years.

(The writer is a policy analyst; views are personal)