Insights into Editorial: November thunderbolt
Bucking media opposition, popular perception and Hillary Clinton’s vicious campaign, Donald Trump has emerged as the 45th president of the United States of America.
How would this victory affect India?
Trump elucidated on his 15-point agenda in the run-up to the elections. If he decides to implement them, it could impact the Indian government, people and businesses in several ways.
- Foreign Policy and Terrorism:
Trump has used strong words on the need to curtail ISIS and curb immigration from countries that export terror. This would comfort India, which has seen a surge in support for ISIS among its young population. If Trump fulfils his promise of restricting immigration, that would further hurt Pakistan. Trump has also planned to expose networks in American society that promote radical Islam and rewarding people to report those exhibiting signs of radicalisation to authorities. This would come as a big boost to Indian government’s own domestic security policies which focus on the need to curb growing Islamic radicalization in India.
After coming to power, the Modi government has been proactive in using the National Investigative Agency (NIA) to apprehend people influenced by or supportive of ISIS. Trump’s ideological offensive against radical Islam could be a force multiplier for the Modi government.
- The Energy Plan:
Trump has promised to unleash America’s shale oil, natural gas and coal reserves to make U.S energy self-sufficient. If elected president, he has also promised to open onshore and offshore leasing on federal lands and lift the moratorium on coal leasing.
India, like many other nations in the world, is at the mercy of Organisation of Petroleum Exporting Countries (OPEC) when it comes paying a price for oil. A rise in the price of fuel bleeds India’s domestic oil companies, throws the government’s fiscal deficit targets in disarray and leads to a spike in the prices of essential goods.
If Trump were to come true on his promises, India could benefit massively. Opening up of the US oil sector could lead to price stability globally. It could also throw open massive business opportunities for Indian oil companies including the state owned Oil and Natural Gas Corporation of India (ONGC) whose foreign arm ONGC Videsh Limited (OVL) has been expanding its operations globally.
- The Tax Plan:
One of the highlights of Trump’s economic campaign is his plan to reduce corporate tax rates in the U.S to 15%. At present the rate stands at 35%. This would make the U.S one of the most attractive destinations in the world for businesses, especially for American businesses that have set shop in other countries to improve their profitability by paying less taxes. If Trump were to implement this plan, U.S businesses in India could be lured back to American soil.
- Plan to curtail Chinese Trade:
Trump has threatened to label China as a currency manipulator. He has called for imposing higher tariffs on Chinese goods, initiate litigation against China for stealing American trade secrets and bring trade cases against China at the World Trade Organisation (WTO) to force it to cut down its trade subsidies. Trump has harped on the need to reduce the trade deficit with China which touched a record high of $365 billion in 2015. If Trump fulfils his promises and decides to curb Chinese imports, it would hardly benefit India. That’s because Chinese manufacturing and existing trade with the U.S is eons ahead of India.
- Cutting Down Immigration:
Trump has called for making Americans being prioritised for open jobs and restricting skilled visas to make more jobs available to Americans. That would be bad news for top Indian IT companies that make their billions by using the H1B visa programme that allows low cost skilled Indians to work in the U.S. Trump had earlier termed the H1B visa regime unfair. And later in a bid to earn the support of the Indian-American community, he softened his stand. But Indians companies know that every American presidential opposes the H1B visa programme while pitching himself to be elected and never follows through with the promise of curtailing them once in office.
- Reviving the American Economy:
Trump plans to boost GDP growth to 4% by adding 25 million jobs over the next decade. He plans to do this through his lower corporate tax rate plan and easing regulatory frameworks for businesses. He has also promised to cut federal spending to balance the budget through his penny plan that envisages cutting one cent for every dollar in the federal budget over the next few years. That would mean an enhanced role for private businesses in creating jobs to achieve Trump’s targets. That would mean enhanced opportunities for not just big businesses in India but also smaller ones to invest in the U.S.
- EB-5 visa programme:
The EB-5 visa programme is likely to further gain traction in India if Trump were to follow through with his agenda of cutting federal spending while at the same time easing regulation for businesses. Under the programme, Indian businesses would require to invest a minimum of $1 million and create at least 10 jobs for American workers. If any entrepreneur can do this in the U.S, they are eligible for a green card. India has 2.5 lakh millionaires and the number is expected to double by 2025. That would mean more opportunities for Indians to invest in the U.S and get that much coveted and aspirational green card.
- Scrapping Obamacare:
Trump has used colorful adjectives to describe Obamacare during his campaign and has vowed to scrap the scheme aimed at providing affordable healthcare to Americans. That could be bad news for the Indian pharma sector. As pointed above, pharmaceuticals constitute the second biggest exports of India to the U.S. India’s strength in manufacturing affordable generic drugs complemented the objectives of Obamacare. Indian generic drug companies had gained massively with a sub-legislation under Obamacare that allowed the use of ‘biosimilars’. If Trump implements his promise to junk Obamacare, Indian drug companies could be severely hit. Indian IT companies which provide support to the program could also end up losing their business that could lead to job cuts in India.
How would China and Pakistan be affected?
China and Pakistan have been using the US as a cash cow for decades: China by running a huge trade surplus ($366 billion in 2015); Pakistan by soaking up US aid (more than $30 billion since 2002), while pretending to fight radical Islam. All signs indicate that Trump would cut down on the flow of cash to both these countries.
The US has lost five million manufacturing jobs over the past 15 years, while China has seen rapid growth in its manufacturing sector over the same period. Trump is electorally committed to bringing a material number of lost manufacturing jobs back to the US; the only way he can do so will be to offset Asia’s (especially China’s) labour cost advantage in manufacturing with a combination of tariff and non-tariff barriers.
Such a move would come at the worst possible time for China, when a decades-long credit-fuelled investment boom may finally be turning to bust. For China, the potential outcomes of a trade war with the US range from sharply slower growth (best case scenario) to outright recession, which in turn could spark political unrest and, in a worst case scenario, revolution.
What should India do now?
Finally, like much of the world, India is unclear about the policy directions of a Trump administration. therefore, India should not waste time in reaching out to Mr Trump and his team in order to establish a durable understanding that will take the relationship forwards in all sectors of relevance. However, Indian government should make an attempt to sensitize the new president about the strategic interests that bind India and the U.S., and the multifaceted nature of the relationship between the two nations including its regional and global relevance. The ‘golden hour’ to do this may be even before the inauguration of the new President in January 2017.