The republican candidate, Donald Trump has been elected by Americans on the promise of protecting their interests and doing all that is necessary to achieve this goal.
All along, USA has been a strong protagonist of free flow of international trade and investment in goods and services and accordingly championed liberal policies to foster this [sans a tinge of protectionism in specific areas such as agriculture]. India has benefited hugely from such open policy stance.
Now, if Trump were to act on his electoral pronouncements, this will tantamount to a drastic reversal of extant policy stance. It will herald an era of ‘protectionism’ adversely affecting developing countries like India which derive a good slice of its income by doing business with USA. So, what are major areas of concern?
First, the President-elect wants American companies to operate from within USA and would like to achieve this by using draconian measures like imposing an import tariff of 35% on those companies which set up manufacturing facilities in other countries. Such high tariffs could be applied across the board on all imports from countries like India where these MNCs have big presence. This will be a huge set-back to foreign investment and technology transfer to India thereby impacting our ‘Make in India’ mission.
Second, Trump has exotic plans to reform tax laws. These include a steep cut in corporate tax rates as well as personal income tax. Even worse, his tax reduction plans are intended to leave disproportionately higher surpluses in the hands of the rich and super-rich causing loss of hundreds of billion dollars in revenue every year. This can lead to sizeable cut in government spending on welfare programs in turn, affecting exports from India.
Third, he is critical of US administration’s thus far liberal visa regime lamenting consequential loss of jobs to foreign workers. Hence, he wants to protect American jobs by coming down heavily on the number of H-1B and L-1 visa [these are cornered mostly by Indian I-T companies] and substantially increasing cost of giving them. USA accounts for close to US$ 100 billion-worth of exports of IT, ITeS [IT enabled services] from India. Much of this will be jeopardy if Trump were to act on his election pronouncement.
Fourth, the Obama administration runs a number of public health programs viz., Obamacare, Medicare and Medicaid etc. These have led to substantial increase in exports of affordable generic medicines to USA thereby giving a big boost to Indian pharmaceutical firms. Trump had run a virulent campaign against these programs exhorting that these would be repealed if he gets elected. In the event of these programs being dismantled or altered to drastically trim health cover [albeit subsidized], Indian firms will suffer a big jolt.
Fifth, on the issue of protecting intellectual property rights [IPRs] – a key obligation of member states under WTO – under Obama Administration, there has been softening of US stance in regard to their enforcement. This is also reflected in Trans-Pacific Partnership (TPP) trade agreement. India too has benefited from this soft stance even as a personal equation established by prime minister, Modi with Obama served as icing on the cake.
But, Trump is a strong votary of IPR and has been an outspoken critic of the TPP. Hence, there is a real possibility of US administration reverting to tough posturing in its dealings with developing countries including India. Already, under pressure from pharmaceutical and bio-technology lobbyists, there is a talk of his blocking or renegotiating TPP agreement. India will start feeling the heat in due course.
Sixth, under the Doha Development Agenda [DDA] of WTO, developed countries led by USA had got away with maintaining high agricultural subsidies to their farmers in blatant violation of commitments under agreement on agriculture [AoA]. At the 10th ministerial at Nairobi in December, 2015, they had junked the DDA which led commerce minister, Nirmala Sitharaman who led Indian delegation to say “Utterly disappointed! Given the protectionist mind-set of Trump, any chance of resurrecting the DDA appears dim.
Seventh, Trump wants to dismantle the Paris Agreement that sets targets to reverse the worst effects of global warming, which nearly 200 countries agreed to in December, 2015. He strongly believes that US shouldn’t waste “financial resources” on climate change. Though, he proclaims to use them for clean water, eliminate diseases like malaria, increase food production etc, his real intent is to get away from financial commitments needed to make resources and technology available to developing countries. This can affect India’s ambitious plans to develop renewable and other alternate sources of energy.
Eighth, in his quest for ‘energy independence’, Trump is keen to develop its abundant reserves [there are over 100 billion barrels of oil lying fallow in U.S. territory – on land and in shallow water] which can be done with conventional drilling rigs enabling recovery at low cost. He has plans to open up the Southeastern Outer Continental Shelf (OCS) to exploration while eliminating moratorium on drilling for oil in Alaska and on other federal lands. This could lead to falling price of oil to mid $20s per barrel and stay there. This will be good for India which is heavily dependent on imports for its energy needs.
Finally, Trump’s belligerent stance towards the minorities and intent to deal with them with an iron hand – both within USA as well as globally – does not augur well for bringing in international peace and security. He has also pledged to act tough against Pakistan by reducing aid or making it contingent upon latter’s check on support to terrorism. While, this may help India in its fight against export of terror and border incursions, one can only keep his fingers crossed as in the past, US had rarely walked the talk.
On the whole, barring some relief on the energy front [coming via softening price of oil and gas], India is expected to face a hostile external economic environment due to inward looking policies of Trump. Our industries and businesses will need to restructure their strategies to cope up with the ‘new normal’ and government will have to provide full support for enabling smooth adjustment.
Can Modi use his charisma to get least damaging deals from a belligerent US – administration under Trump?