With former President Donald Trump set to make a comeback to the White House, his recent comments in the run-up to the elections offer a clue to what’s on offer for India as it braces itself to navigate a more inward-looking America.
The Republican candidate's comments at the hustings on tariffs and immigration mean that at the top of the list of Indian sectors most likely to face the brunt of a Trump administration is bilateral trade in goods and services, followed likely by employment and study opportunities.
Trade ties
In the run-up to the US presidential elections, Trump repeatedly called out India’s "high tariffs" and limited market access. A Trump return is expected to lead to higher duties on key Indian goods shipped to American markets.
In fact, in 2018, Trump imposed additional duties under a national security law on certain steel and aluminium exports from India and other countries, hitting crucial sectors. While this led to a drop in steel exports during 2018-19, outbound aluminium shipments in the affected lines increased by 14 percent during the same period.
In response, India imposed retaliatory tariffs on 28 products originating or exported from the US, effective June 16, 2019, with an additional impact in terms of duty incidence of about $217 million.
This dispute, along with some others, was settled in 2023 under the Joe Biden presidency, with the US agreeing to exempt a substantial part of steel and aluminium exports from India from penal tariffs imposed by the previous Trump regime, while India removed retaliatory tariffs on certain imports from the US including apples, almonds, chickpeas, lentils and walnuts.
According to Sanjay Budhia, co-chairman, CII National Committee on EXIM, the Trump administration’s 25 percent tariff led to a loss of approximately $240 million for India’s steel sector alone.
Budhia warns that in 2024, more sectors, including pharmaceuticals, textiles and information technology, will be vulnerable to a potential tariff hike.
Trade relations between the two countries are very different from when Trump first came to power. India’s exports to the US have nearly doubled to $77.5 billion in FY24 from $42 billion in FY17 when the former President first took office.
Trade has become more broad-based as well. The top 10 categories account for 41.6 percent of total exports from India to the US, compared with 45.3 percent in FY17.
The expansion of trade has been accompanied by the inclusion of new items like smartphones, which now have nearly as much market share as gems and jewellery, at 7 percent, and solar photovoltaic cells assembled in modules.
Outsourcing and IT exports
Over on the services side, outsourcing and, consequently, IT exports is another area that could face headwinds under a Trump administration.
Trump has expressed concerns about outsourcing and has reportedly promised to end the practice if re-elected, raising fears for India’s multi-billion-dollar outsourcing industry, whose largest customer is the US.
“India should prepare for possible measures affecting IT exports. With over 80 percent of India’s IT export earnings coming from the US, any restrictions could significantly impact Indian businesses. Indian IT firms, with a strong presence in America, contribute to economic growth and job creation in both countries,” said Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI) think tank.
India’s overall services exports have doubled to $339.6 billion from $160 billion. India plans to increase services exports to $1 trillion by 2030.
H1B visa
Trump has in the past been critical of H1-B visas, terming them as “unfair” to US workers. Given this, there are expectations that during his second term, he may overhaul the rules around such visas.
In fact, when he was president in 2020, the US Labour Department proposed a new rule to raise the minimum wage of an H1-B visa holder to that of the standard US worker, but this did not go through.
H-1B is a non-immigrant visa that allows US companies to employ foreign workers in speciality occupations.
“H-1B visa policies are crucial for the movement of skilled professionals, especially from India’s IT sector. Trump’s stricter immigration stance could lead to changes in visa rules, impacting Indian IT professionals and raising costs for Indian IT companies,” GTRI’s Srivastava said.
FDI
Foreign direct investment (FDI) was one of the strong points of the relation between India and the US during Trump’s tenure. America's share of India’s FDI rose from 6 percent at the start of Trump’s first presidency to 8 percent in FY21, when he left office. The US’ position in India’s FDI improved from sixth to third. The country invested 2.5 times more in India during Trump’s four years than in his predecessor Barack Obama’s last term.
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