The re-election of Donald Trump as the President of the United States in 2024 has set the stage for a significant shift in global economic and geopolitical dynamics. For India, this victory presents a mixed bag of opportunities and challenges. From trade relations to foreign investments and immigration policies, Trump’s “America First” agenda is likely to have far-reaching consequences for India. Let’s dive into the key areas where India will feel the impact of Trump’s second term.
1. Trade Relations: The Return of Tariffs
One of the most immediate implications of Trump’s victory is the potential reintroduction of tariffs on Indian exports. During his first term, Trump labelled India as a “tariff king” and imposed tariffs on steel and aluminium exports. India also lost its preferential trade status under the Generalised System of Preferences (GSP), which affected about 12% of Indian exports to the U.S.
Trump’s protectionist stance is expected to continue, with potential tariffs on sectors like:
- Pharmaceuticals:
Indian generic drug manufacturers could face increased tariffs, making their products less competitive in the U.S. market.
- IT Services:
The Indian IT sector, heavily reliant on U.S. contracts, could be affected by stricter visa regulations or policies promoting more domestic hiring in the U.S.
- Textiles and Apparel:
Higher tariffs could reduce India’s competitiveness in these sectors, impacting revenue from one of its largest export markets.
However, despite these challenges, there are opportunities too. As part of Trump’s China Plus One strategy—aimed at reducing reliance on Chinese manufacturing—India could benefit by attracting more foreign investments into its manufacturing sector. Sectors like electronics manufacturing services (EMS), chemicals, auto components, and solar panels are expected to gain from this shift.
2. Foreign Portfolio Investments (FPIs): A Boost Amid Volatility
Trump’s pro-business policies, including corporate tax cuts and deregulation, are expected to boost economic activity in the U.S., which could have positive spillover effects on emerging markets like India. During his first term, FPI inflows into India surged as global investors sought higher returns amid favourable U.S. tax policies.
However, analysts caution that Trump’s fiscal policies—such as increased spending and tax cuts—could lead to higher inflation in the U.S., resulting in elevated interest rates. This would strengthen the U.S. dollar, potentially attracting global capital back to the U.S., which could lead to outflows from emerging markets like India.
As Nitin Aggarwal from Client Associates notes, “A Republican-led government under Trump could significantly reshape trade dynamics with increased tariffs and a more protectionist stance on international trade.” This could introduce volatility in FPI flows into India.
3. Geopolitical Dynamics: Strengthening Strategic Ties
On the geopolitical front, Trump’s tough stance on China aligns with India’s strategic interests. The U.S.-India Comprehensive Global Strategic Partnership has been strengthened over recent years due to mutual concerns over China’s growing influence in the Indo-Pacific region.
Trump’s return is expected to further deepen defence cooperation between the two nations through initiatives like QUAD (U.S., India, Japan, Australia), aimed at ensuring a free and open Indo-Pacific. This could lead to increased defence exports from India and more joint military exercises between the two countries.
Moreover, Trump’s China Plus One strategy provides an opportunity for India to position itself as a key alternative manufacturing hub for global companies looking to diversify their supply chains away from China.
As Adrian Mowat, an investor based in Hong Kong SAR, points out, “India might be in a good position if Donald Trump wins because his tariff stance on China could encourage a shift in manufacturing from China to India.”
4. Impact on Key Sectors
Several sectors in India are likely to experience both positive and negative effects from Trump’s policies:
- IT Services:
The Indian IT industry may face challenges due to stricter immigration policies under Trump’s administration. H-1B visa restrictions could limit the ability of Indian IT professionals to work in the U.S., increasing operational costs for companies that rely on outsourcing. However, many Indian IT firms have already adapted by increasing local hiring in the U.S., which may mitigate some of these challenges.
- Energy:
Trump’s support for fossil fuel production is likely to lower global energy prices, which would benefit India as a net importer of crude oil. Lower oil prices could help reduce inflationary pressures in India and improve its current account deficit.
- Manufacturing:
With Trump’s focus on reshoring American manufacturing jobs and imposing tariffs on Chinese goods (up to 60%), Indian manufacturers stand to gain by filling supply chain gaps left by China. This is particularly relevant for sectors like chemicals, auto components, electronics manufacturing services (EMS), and solar energy equipment.
5. Immigration Policies: Impact on Indian Workforce
Indian professionals, particularly those in the tech sector, could face challenges under Trump’s immigration policies. His first term saw increased restrictions on H-1B visas—a program crucial for skilled Indian workers employed by American tech companies.
If these restrictions resurface during his second term, it would directly impact Indian tech companies that rely heavily on U.S.-based operations. Tighter visa regulations could strain India’s tech sector and limit access to U.S.-based opportunities for skilled professionals.
However, this challenge might also drive Indian tech companies to expand domestically or explore other markets, potentially boosting India’s local tech ecosystem.
Conclusion: Navigating Opportunities Amidst Challenges
Donald Trump’s return to power presents both opportunities and challenges for India:
Opportunities include increased defence cooperation and benefits from the China Plus One strategy.
Challenges include higher tariffs on exports, stricter immigration policies affecting skilled professionals, and potential volatility in foreign portfolio investments due to rising inflationary pressures.
As Manish Bandhari from Vallum Capital Advisors aptly puts it, “Under a Trump 2.0 presidency…India could see renewed Foreign Portfolio Investment (FPI) inflows as trade and economic alignment strengthen.” However, navigating these opportunities will require careful diplomacy and strategic planning from both Indian policymakers and businesses.
In this new era of U.S.-India relations under Trump 2.0, agility will be key for India as it seeks to balance short-term challenges with long-term growth prospects.
Written by Mr. Ashish Aurora –
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