Sudipto Mundle: On balance, India could gain from Trump’s policy blitzkrieg
Summary
- The US President’s disruptions are more an opportunity than a threat if we play our cards right. Tariff reduction would be good for our economy while benefits can be extracted from today’s shifting geopolitical dynamics.
From the very day of his second appointment as US President, Donald Trump has unleashed a blitzkrieg of executive orders which have turned many US policies on their head, sacked large numbers of government staff and disrupted governance systems. These disruptions are severely impacting the US, but are also reverberating throughout the world. It is an unrestrained and unprecedented display of raw power by the most powerful man in the world.
How are these disruptions likely to affect India? Three disruptive moves in particular need to be taken into consideration in this regard—on immigration, trade and tariff policy, and foreign policy.
Also Read: Harsh Pant: Trump’s foreign policy recast poses a challenge that India cannot avoid
Attacking immigration was Trump’s first major move. He had harped on this issue in his election campaign. In addition to blocking illegal immigrants through the southern US border with Mexico, and deporting illegal immigrants already in the country, he may drastically restrict immigration even through legal channels, including the H-1B visa route.
Deportation is a tragic outcome for illegal Indian migrants who had paid huge sums and borne great hardship to reach the US. A tightening up of H-1B visa provisions is also an unfortunate setback for aspiring legal migrants. However, neither of these policies is a major issue for the Indian economy.
The second disruption, the most important for India, is in trade and tariff policy. Trump first targeted neighbours Mexico and Canada, then US allies like the EU and Japan, and then China. His approach in all cases is to announce an aggressive policy, then allow time for negotiations before new tariffs actually kick in.
Also Read: Mint Quick Edit | Should Trump’s latest tariff salvos worry India?
Among the other countries he is targeting, India is the most prominent. He has often called out India for imposing the “highest" tariffs and announced that he will impose reciprocal rates. Talks have begun on a bilateral trade agreement. Meanwhile, the imposition of reciprocal tariffs has been held in abeyance.
A trade agreement will probably entail larger imports of oil, defence equipment, mini nuclear-power plants, etc, by India from the US to reduce the bilateral trade imbalance. Part of this will replace cheaper imports from Russia, which is a negative.
However, a major component of any trade agreement will relate to tariffs. India will have to significantly reduce its tariffs for the US as well as other members of the World Trade Organization under its ‘Most Favoured Nation’ provisions. The process has already started with the latest budget proposals and will be taken further.
Lowering tariffs will serve India well. Consumers will enjoy lower prices. Lower import duties will also help exporters who have had the playing field tilted against them in favour of the protected industries. Economists have long advocated this policy and the 1991 reforms demonstrated how tariff reduction was followed by a boom in exports.
Despite this, the protectionist lobby prevailed and India’s policy of easing tariffs was reversed a few years ago. Now Trump will prevail and its impact will be beneficial for Indian consumers, exporters and the economy.
Also Read: India must not let Trump’s tariffs and trade disruption weaken its export thrust
The third disruption is the upending of US foreign policy on many fronts. In Gaza, Trump’s intervention helped end the killing and destruction. But he has replaced the two-state solution, the previous US stance, with an atrocious proposal that the US take over Gaza and develop it as a resort while Palestinians are re-settled in neighbouring Arab countries.
These neighbours, all beholden to the US, are scrambling for a viable alternative. How the Gaza question will play out remains uncertain, but the real target behind Trump’s Gaza policy is Iran.
A concerted US- Israeli bid to isolate Iran will adversely affect India’s economic relations with Tehran. But peace in Gaza will enable a revival of the ambitious India-Middle East-Europe Economic Corridor (IMEC), which was put in cold storage after the Gaza war broke out. On balance, India will gain.
Another aspect of Trump’s foreign policy doctrine is putting Ukraine and the North Atlantic Treaty Organization (Nato) allies of the US on notice, while he makes overtures to Russia. This should be seen together with his energetic pursuit of a technology and trade war against China, the only potential threat to US hegemony.
Also Read: Geopolitics: Brace for a global shake-up now that Trump has rattled Nato
Based on Kissinger’s ‘balance of power’ doctrine, Nixon had reached out to China to isolate the Soviet Union, the only threat to US power at the time. Trump is reversing that doctrine, reaching out to Russia to isolate China. How will all this impact the Indian economy?
On the downside, easing of sanctions against Russia will give it more elbow room to negotiate higher prices for oil exports to India, though payment arrangements may become easier. However, apart from higher imports of more expensive oil and defence equipment from the US, as noted above, India may benefit as a strategic partner from transfers of technology and more US investments.
Further, China may re-assess and moderate its hostility towards India, as is already evident. If the moderation is extended to trade and investment, India will need to carefully nuance and calibrate its stance to take advantage of this opportunity. Finally, the EU and UK are also reaching out to India as their alliance with the US turns fragile. Here again, India can bargain hard to maximize trade and investment benefits.
Thus, on balance, the Trump disruptions are more an opportunity than a threat for India. However, India needs to carefully navigate its way to make the most of the potential gains.
These are the author’s personal views.
The author is chairman, Centre for Development Studies.
