Trump’s Re-election and India US Relations – Explained Pointwise

In a surprising outcome of the US President election result, Donald Trump has been re-elected for the 2^nd term. His previous terms as the US President saw many drastic measures, which are not normally expected of any US leadership. His re-election signals potential economic shifts in the United States that could impact global economies, including India. Therefore, this article delves into a comprehensive overview of Trump’s Re-election and India US Relations by providing the multifaceted impact of Trump’s second term on India.

A brief overview of India-US relations

What are some of the recent developments in India-US Relations?

Continued Strategic Policies: Biden maintained key policies from Trump, prioritizing India in the US’s Asia strategy. This included downgrading Pakistan’s role and focusing on China as a challenger.

Quad Elevation: Biden elevated the Quad to summit-level meetings, emphasizing cooperation among India, Japan, Australia, and the US on regional security.

Technology Cooperation: In January 2023, the iCET initiative was launched to enhance cooperation on emerging technologies, like semiconductors and jet engines.

Economic Strategy: Biden upheld Trump-era tariffs on China, aiming to de-risk the US-China relationship and strengthen supply chains involving India.

Defense Cooperation: The United States has emerged as the largest importer of Indian defence products, accounting for nearly 50% of India’s total defence exports.

Regional Stability: Biden expanded cooperation with India in areas like cybersecurity, maritime security, disaster relief, and telecommunications through the Quad, aligning with India’s non-military approach to the forum.

Read More – Recent Development in India-US Relations

What are some of the challenges of India-US relations?

Differences over Russia’s actions: The U.S. and India disagree on how to handle Russia’s invasion of Ukraine. While US expects an all-out criticism of Russia from India, India has maintained a balanced posture. Recently India’s PM attended the BRICS summit, organised by Russia.

Tensions over diplomatic comments: Critical comments from the U.S. State Department about India’s state of democracy and religious freedom, along with U.S. Ambassador Eric Garcetti’s remarks on Manipur and human rights, led to a diplomatic spat. In response, India summoned a senior U.S. diplomat.

Alleged assassination plot: The discovery of an alleged plot involving Indian security officials targeting a U.S. citizen has added a layer of distrust and complicated the bilateral relationship.

What are some of the Trump’s controversial policies globally?

Trade Policies: Trump’s “America First” agenda includes imposing tariffs on foreign goods to protect domestic industries. He has proposed a 10% tariff on all imports, which could disrupt global trade dynamics.

Foreign Alliances: Trump has criticized NATO allies for not meeting defense spending commitments and has suggested reducing US involvement in international alliances, potentially weakening collective security arrangements.

Immigration Policies: Stricter immigration controls, including limitations on H-1B visas, could affect global talent mobility, impacting countries like India that have a significant number of professionals working in the US.

Climate Policy: Trump’s previous withdrawal from the Paris Agreement and potential rollback of environmental regulations may hinder global efforts to combat climate change.

What Policies towards India defined his last term?

Defense Cooperation: The US designated India as a Major Defense Partner, facilitating the transfer of advanced military technology. The signing of the Communications Compatibility and Security Agreement (COMCASA) in 2018 enhanced military interoperability.

Trade Relations: While trade increased, disputes arose over tariffs and market access, leading to the termination of India’s preferential trade status under the Generalized System of Preferences (GSP) in 2019.

Strategic Alignments: The revival of the Quadrilateral Security Dialogue (Quad) involving the US, India, Japan, and Australia aimed at countering China’s influence in the Indo-Pacific region.

Immigration Restrictions: The administration imposed stricter regulations on H-1B visas, affecting Indian IT professionals.

What are the possible negatives of Trump’s Re-election for India-US relations?

Increased Tariffs on Imports: Trump’s proposal to impose a 20% tariff on all imports and a 200% duty on automobiles is likely to spark trade tensions. Trump’s earlier tenure was also marked by tariffs on Indian goods and the withdrawal of India’s Generalized System of Preferences (GSP) status. These measures could be reinstated, adversely affecting India’s exports, particularly in industries like textiles and pharmaceuticals.

Unpredictable Trade Relations: Trump’s tendency to make trade deals volatile and to aggressively negotiate tariffs might lead to frequent disputes, complicating India’s trade environment and its efforts to maintain steady export growth.

Deficit Expansion: Despite a high budget deficit, Trump plans to continue tax cuts. A high US deficit could lead to volatility in global bond markets, affecting emerging markets, including India.

Federal Reserve’s Rate-Cut Dilemmas: Trump’s policies may affect the Fed’s approach to rate cuts. Central banks, including India’s RBI, may adopt a cautious stance, impacting India’s monetary policy and limiting scope for rate cuts aimed at stimulating the economy.

Cryptocurrency policies: Trump’s favorable view of Bitcoin, aiming to establish the US as a “Bitcoin superpower,” has triggered a surge in cryptocurrency values. This development is largely positive for crypto investors, its implications for financial stability are mixed.

Increased Lobbying in Space and Satellite Sectors: Trump’s preference for US space and satellite technology could create competitive pressures for India’s satellite and space programs. Musk’s lobbying for favorable regulatory frameworks in these sectors may affect India’s partnerships and domestic industry growth.

Trump’ South Asia policy: Trump’s relations with Pakistan and Bangladesh will have implications for India. His recent comments against violence in Bangladesh against Hindus and past unfriendly relations with Pakistan will have implications for India. It means India may not have a mediator to pressurise it’s neighbouring countries, except in extreme conditions like war.

Strategic Alignment Against China: US is expected to take a firm stance on China. It will expect cooperation from India in this regard. It may go against the recent developments like LAC agreement, that took place between India and China.

China’s changing stance and it’s impacts: High tariffs on Chinese goods promised by Trump, would push China for a bigger stimulus package of 2-3% of GDP annually, for next several years. This could make other markets, including India, less appealing to FPIs and other key investors.

What are the possible positives of Trump’s Re-election and India-US relations?

Renewal of Trade Negotiations: Trump’s intent to resume discussions on a Free Trade Agreement (FTA) with India could revive talks that had stalled in 2019-2020, potentially increasing trade volumes and technology transfer.

Access to Military Technology: Trump has expressed interest in providing US military hardware to India, which aligns with India’s modernization goals. His administration is expected to facilitate technology transfers and defense purchases with less bureaucratic resistance.

Relief from Human Rights Scrutiny: Under Trump, India is likely to experience less pressure over issues such as minority rights, freedom of the press, and the operation of NGOs.

Stronger Stance Against Khalistani Separatism: Trump is expected to take actions against Khalistan groups in the US, which is seen as beneficial for India. He also is not Favourable towards Canada’s Justin Trudeau government.

Potential Dollar Weakness and Forex Volatility: Increased inflation and trade deficits could weaken the US dollar. For India, a weak dollar may reduce import costs, benefiting sectors like IT, while simultaneously posing challenges in managing forex and interest rate stability.

Proposed Green Card Reforms: Trump’s recent proposal to automatically grant green cards to international students graduating from US institutions could benefit Indian students. This policy may encourage more Indian students to pursue education and careers in the US, enhancing India’s skills pipeline.

Impact on Legal and Illegal Immigration Controls: While stringent immigration controls could limit the flow of unskilled labor to the US, the focus on skilled immigrants aligns with India’s interests, especially for sectors like IT and engineering.

Reduction in Corporate Tax Rate (from 21% to 15%): Trump’s plan to reduce corporate taxes could free up capital for US businesses, potentially increasing demand for outsourced services from India.

What should be done by India to improve its position?

Pursuing a Strategic Economic Partnership: By capitalizing on Trump’s openness to energy and defense cooperation, India can deepen its economic and military ties with the US.

Strengthen Domestic Demand and Trade Diversification: India should prepare for external shocks by enhancing domestic demand and diversifying its export markets to mitigate the impact of increased tariffs or trade restrictions from the US.

Maintain Vigilance on Monetary Policy Adjustments: The RBI should carefully navigate its rate-cut cycle, prioritizing financial stability amid global volatility. A cautious monetary policy will help India better manage exchange rates and inflation fluctuations influenced by the Fed’s policies.

Leverage Immigration and Education Ties with the US: India can benefit from Trump’s immigration reforms by fostering educational exchanges and technology partnerships that support India’s IT and engineering sectors. Strengthening these ties can provide a stable pipeline of skilled professionals to India’s economy.

Bolstering Regional Influence: With Trump’s anticipated reduced focus on South Asia, India can strengthen its influence among smaller regional countries, utilizing its development programs to support stability and development, particularly if US aid declines in Pakistan and Bangladesh.