Trump 2.0: India poised to leverage comparative advantage amid shifting global trade and supply chains

During Trump’s first term, India received a modest $11 billion in FDI inflows.

With Donald J. Trump’s historic return to the White House as the 47th US President, the new administration’s likely focus on domestic job creation, shoring up US manufacturing, and strengthening supply chains are expected to present opportunities for India’s trade landscape. India stands to benefit, particularly in sectors like pharmaceuticals, textiles, and electronics, which are positioned to capture value as companies look to diversify away from China, a State Bank of India (SBI) report said.

In the previous Trump administration, India saw the revocation of its Generalised System of Preferences (GSP) status which had enabled tariff-free exports on specific goods to the US. While the GSP status has not been reinstated, Indian exports in key sectors have continued to grow, underlining India’s resilience and adaptive approach. Footwear, minerals, and machinery exports to the US are on an upward trend, with footwear alone rising by 8 percent in FY23 compared to the previous period (FY22). Similarly, mineral exports increased by 33 percent from FY22 to FY23, highlighting India’s competitive edge in these sectors.

Strategic partnerships between the two nations, such as the Indo-US 2+2 Dialogue, set a strong foundation during Trump’s first term. The return of Trump could further solidify these relationships, particularly with the Indo-Pacific region’s strategic importance. Indian defence exports, bolstered by increasing international demand and favourable government policies, have surged 30 times over the past decade — a trend expected to continue under Trump’s assertive geopolitical stance, the report stated.

Financial markets are poised for short-term volatility amid potential tariff hikes, visa restrictions, and a strong dollar. However, a weaker rupee could prove advantageous for Indian exports, especially in manufacturing, textiles, and agriculture. “India’s comparative advantage in sectors like footwear and electrical machinery is already showing results, with exports climbing despite global trade turbulence,” the SBI’s report noted.

The global supply chain reorganisation, accelerated by Trump’s pro-America economic stance, may benefit India as corporations consider relocating operations from China. Pharmaceuticals, textiles, and electronics are particularly well-positioned for growth. Additionally, with initiatives like PM-MITRA, RoDTEP, and Mega Food Parks, India is enhancing its appeal as a manufacturing hub, and could continue attracting FDI in newer sectors, such as renewable energy, medical devices, and digital services, it said.

FDI and trade dynamics

During Trump’s first term, India received a modest $11 billion in FDI inflows. While similar protectionist policies may lead US based MNCs to prioritise domestic investments, India’s large consumer base and robust economic growth are anticipated to keep it attractive for foreign investors. The FDI landscape is also evolving beyond traditional sectors. “FDI in sectors like non-conventional energy, medical appliances, and transport is growing, allowing India to mitigate potential reductions in US- led FDI,” it said.

Challenges for Indian IT sector

If Trump’s administration intensifies restrictions on work visas, particularly the H-1B programme, Indian IT and ITES companies could face higher costs associated with hiring local US talent, potentially impacting profit margins. During the previous Trump administration, non-immigrant visas remained at about 1 million annually, contrasting sharply with 2023 figures, where nearly 1.4 million visas were issued. “Indian IT firms may have to adjust, which could strain their hiring budgets,” it said, adding that “increased domestic recruitment costs could strain margins and lead companies to refocus on Atmanirbhar Bharat initiatives in the longer run.”

Resilient trade amid challenges

India has consistently maintained a trade surplus with the US, underscoring robust export performance. The SBI report reveals that “iron and steel exports to the US rose by 44.7 percent from FY20 to FY21, despite tariffs imposed during Trump’s initial term.” India’s growing integration into global value chains is a promising sign for the future, especially as economic initiatives like Atmanirbhar Bharat emphasise self-reliance and domestic production.