The election of Republican Party candidate Donald Trump as the next President of the US has sent shock waves across the world. All along, America has been a strong protagonist of free flow of international trade and investment in goods and services. If Trump acts on his electoral pronouncements, this will tantamount to a reversal of the existing US policy stance. It will herald an era of “protectionism”. So what are the major areas of concern for India?
President-elect Donald Trump wants American companies to operate from within the US and achieve this aim by imposing an import tariff of 35% on those who set up manufacturing facilities in other countries. Such a high tariff will seriously impact India where these companies have a big presence. This will be a huge setback to foreign investment and technology transfer and in turn to our Make in India initiative.
Trump has exotic plans to reform American tax laws. These include a steep cut in corporate tax rates as well as personal income tax rates in his country. These will leave hundreds of billion dollars surpluses in the hands of the rich and the super-rich and a corresponding loss of revenue to the exchequer every year. This can lead to a sizeable cut in spending on welfare programmes, and can affect the exports to the US from other countries like India.
The US President-elect believes that the extant visa regime has denied Americans their due share of jobs. So he will drastically reduce the number of H-1B and L-1 visas, besides substantially increasing the fees. This will affect Indian IT and ITeS [IT-enabled services] companies which have hitherto been major beneficiaries of such visas. A big slice of close to US$ 100 billion worth of exports to America could be at risk.
Trump had run a virulent campaign against public health programmes, viz, Obamacare, Medicare and Medicaid and vowed to repeal them. If he goes ahead dismantling these programmes or in a somewhat diluted scenario, alters them to trim health cover (albeit subsidized), this will give a jolt to Indian pharmaceutical firms which have so far gained hugely by way of surge in the exports of affordable generic medicines to the US (courtesy, such programmes).
In regard to enforcing intellectual property rights (IPRs) – a key obligation of member states under the World Trade Organization — there was some softening of the US stance under the Obama dispensation. This is also reflected in the Trans-Pacific Partnership (TPP) trade agreement. India too has benefited. The personal equation between Prime Minister Narendra Modi and President Obama served as icing on the cake.
TOUGH US POSTURING?
But Donald Trump is a strong votary of IPRs and an outspoken critic of the TPP agreement. Hence, there is a real possibility of the US Administration reverting to tough posturing and raising the bar, especially in the area of patent and data protection. Already, under pressure from pharmaceutical lobbyists, there is a talk of his blocking or renegotiating the TPP agreement. India will start feeling the heat in due course.
Under the Doha Development Agenda (DDA), the developed countries led by the US always got away with maintaining high agricultural subsidies for their farmers in a blatant violation of commitments under the agreement on agriculture. At the 10th Ministerial Conference held in Nairobi in December, 2015, they had junked the DDA which led Minister of State for Commerce Nirmala Sitharaman, who led the Indian delegation, to say: “Utterly disappointed! Given the protectionist mindset of Trump, any chance of resurrecting the DDA appears dim.
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 the US shouldn’t waste “financial resources” on climate change. Though he proclaims to use them for purposes like providing clean water and eliminating diseases, his real intent is to get away from financial commitments needed to help the developing countries. This can affect India’s plans to develop renewable energy sources viz., solar and wind.
In his quest for “energy independence”, the US President-elect is keen to develop abundant American reserves (there are over 100 billion barrels of oil lying fallow in the US territory – on land and in shallow water) which can be done with conventional drilling rigs enabling recovery at a low cost. He has plans to open up the Southeastern Outer Continental Shelf (OCS) to exploration while eliminating moratoria on drilling for oil in Alaska and on other Federal lands. This could lead to a falling price of oil to mid-$20s per barrel and stay there.
STANCE TOWARDS MINORITIES
Finally, Trump’s belligerent stance towards the minorities and his intent to deal with them with an iron hand – both within the US and globally – does not augur well for bringing in international peace and security. He has also pledged to act tough against Pakistan by reducing American aid or making it contingent upon the latter’s check on its support to terrorism. While this may help India in its fight against the export of terror and border incursions, one can only keep one’s fingers crossed as in the past the US had rarely walked the talk.
On the whole, barring some relief on the energy front (coming via softening prices of oil and gas), India is expected to face a hostile external environment due to the inward-looking policy ideas of Trump. Indian industries and businesses will need to restructure their strategies to cope with the “new US norms” and the 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? Only time will tell.
(The author is a policy analyst based in Delhi. The views expressed are personal.)
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