As the US prepares to elect its next President in keenly contested election, irrespective of who the winner will be, there is unlikely to be a big change in the approach of the world’s largest economy when it comes to trade and investments relations with India, analysts and trade sources feel.
There will likely be continuation of the “America First” policy by the new administration though tools and pace of implementation of this slogan may differ between Donald Trump or Kamala Harris presidencies.
In the run-up to elections the Republican party candidate Trump has already announced that he will be raising import duties to 20% across the board and putting a 60% duty on Chinese imports. On some products like electric vehicles he has talked of 100% duties.
For perspective, the trade-weighted average import tariff rate for industrial goods in the US is just 2.0%. About 94% of US merchandise imports are industrial goods, and half of those enter the country duty-free. On whether there can be sudden across the board duty hikes, trade expert and acting president and Distinguished Professor, Council for Social Development Biswajit Dhar says it is “possible” because Trump has done something similar in his previous presidency.
The outgoing Joe Biden administration has singled out China for punitive duties. On Chinese electric vehicles import duties of 100% have been imposed, on chips the duty has been raised to 50%. Apart from tariffs, the Biden administration has also through the Inflation Reduction Act unveiled massive subsidies for “re-industrialisation” of the US, meaning regaining the country’s acclaimed manufacturing prowess.
Each side of the US political divide has proved its commitment to re-industrialisation. If Harris wins then the US government may rely less on across the board hikes in import duties but put barriers to imports through imposition of environmental, labour and other standards, according to the CEO and director general of Federation of Indian Export Organisations (FIEO) Ajay Sahai.
“Biden has actually put in place very extensive industrial policy. One of the things that is given in the case of industrial policy is that tariffs are raised. The US will almost be starting from scratch because all the earlier manufacturing industry has almost disappeared. They can’t stand up to competition when this new industry is coming,” Dhar said.
While India may face higher tariff walls in exports, in imports it may face greater pressure to open up markets.
“With Trump we will have to be careful because he has raised the issue of trade deficit with India a number of times in the past. He may ask for further opening up of the markets for agriculture and pharma,” Sahai said. The US is the most lucrative market for Indian exports. In 2023-24 total merchandise trade between India and the US was $ 119 billion. India’s exports were $ 77.5 billion and imports $ 42.1 billion resulting in a surplus of $ 35 billion.
Already the US has protested the price control on medical stents by India and hurdles in laptop imports through putting in place a system of advance authorisation and pressure can come on these matters too, Sahai added.
Earlier Trump presidency saw many disputes between the US and India end up before the World Trade Organisations’ (WTO) dispute settlement system. The most cited is the one where the tariffs were in 2018 raised on steel and aluminium for all countries including India. This prompted retaliatory duties and WTO disputes. Last year both sides ended all seven disputes at the WTO after negotiations.
“Trade prospects do not look very cheerful. There are going to be headwinds,” Dhar said.
Investment
While trade gains look doubtful, even on the investment side there may not be much to cheer about for New Delhi from US electoral outcome. The US is the third biggest source of Foreign Direct Investment (FDI) in India. Since 2000 the FDI routed from the US stands at $ 66.7 billion which is 10% of the total. Other investments by American companies may have come through other geographies like Europe and Mauritius.
“In his last presidency Trump had sent out a message to the US companies to bring back capital home and invest in the US. That is going to be another issue if that happens together with the industrial policy. The US need for more capital is going to put pressure on global flows of FDI. Last couple years have not been good for FDI in India and that could be another source of worry,” Dhar said.
Sahai is of the view that the China plus one policy of the US might be accelerated under Trump and this could spell some gains on the investment front but it would not be in core manufacturing but in services and some high-technology products like semiconductors.
But according to Dhar, the wait of the last few years for benefits of this policy has not yielded results. “Unfortunately there are better and more efficient investment destinations in Southeast Asia and even Mexico.”
Visas
Every US administration in the last two decades has tightened the norms for limited time visas for workers from India. This is important for India as its services exports to US were about $ 36.3 billion in 2023.
“Trump’s rhetoric suggests that he is extremely tough on immigration. That sends a warning. All these H1B visas may become more difficult. There are expectations that the global economy will be cooling down and the US too. There is going to be protectionist pressure on this front as well,” Dhar said.
Other Issues
The US is also conducting countervailing and some anti-dumping investigations against some Indian products. Then there is an issue of intellectual property rights waiting in the wings. The US wants the Indian law to be tightened and make it more favourable to patent holders from the US.
“Finally it will be how two governments are able to manage these things, There are going to be headwinds, Indian government will also have to put its next foot forward to ensure that its latest market remains intact,” Dhar added.
From: financialexpress
Financial News
