With uncertainties set to rise around American polices under Donald Trump, India may have to grapple with slower global growth, which could specifically impact exports in the coming years, said Sajjid Chinoy, Head, Asia Economic Research, JP Morgan.
In an interview to Moneycontrol's Shweta Punj, Chinoy said that while it is tough to predict what may actually pan out during Trump's second term as US President, "I think the one thing we can say with certainty or with some degree of confidence is that uncertainty is going to rise."
"Trump has always promised a lot of deregulation, which will help corporate business investment in the US and more fiscal easing. So, you're in this very strange dynamic where global growth is slowing, US growth is slowing less than that, which means US exceptionalism continues. And then emerging markets have the worst of all worlds where you're dealing with lower global growth, but you're still dealing with tight global financial conditions.
On his inauguration-day on January 20, Trump announced that the US will roll out an America First Trade Policy.
"America will no longer be beholden to foreign organizations for our national tax policy, which punishes American businesses," Trump's office said in a statement, however he is yet to announce specific tariffs on countries.
During his campaign, Trump did threaten higher tariffs on goods coming in from Mexico, China and Canada as well as on BRICS nations, that include India.
Chinoy said that unlike 2018, China is sitting on excess capacity, therefore if a trade war starts between US and Beijing , the concern for countries in Asia and other emerging markets is that more and more of this "excess capacity" may be redirected to those economies, which will have an impact on manufacturing.
"So, my point is there are lots of moving pieces. This could be a tricky and volatile year for emerging markets. India will have to be very vigilant," he added.
Chinoy said, if US imporses higher tariffs on certain countries, India may get new opportunities as businesses could start moving out of their traditional picks such as China.
"So, India should basically expect that in the coming years, that there will be a lot of opportunity, there's going to be a lot of churn of global value chain. And if you do get into a protracted US China trade war, then, A, you will have multinational companies that look for other places outside of China, and India will very much be in that shortlist. And B, you will have Chinese FDI, looking for other homes in the region," Chinoy added.
Many anticipate that America’s hyper-focus on the China-plus-one strategy could end up benefiting the South Asian nation in the long run, where US companies could diversify their supply chains to include India, especially if Trump implements steeper tariffs on Beijing.
The US is India's largest trading partner, with annual trade exceeding $190 billion.
Between FY20 and FY24, India's merchandise exports to the US rose by 46 percent, from $53.1 billion to $77.5 billion. Imports from the US too increased, by 17.9 percent from $35.8 billion to $42.2 billion.
During his campaign, Trump had promised raising import duties to as high as 60 percent on Chinese goods, which could trigger retaliatory or pre-emptive actions from Beijing.
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