Trump's return as president looks imminent: How will it impact India-US trade ties?

That’s how Trump, during a recent election rally, described India levies tariffs on US companies. There is a concern among experts that Trump 2.0 could levy hefty taxes on Indian exports, taking a toll on domestic businesses. Trump had promised to impose reciprocal taxes on India if elected again, despite having a “great relationship with Prime Minister Narendra Modi”.

The US is India's largest trading partner with the total annual trade crossing $190 billion.

Analysts say that Trump in his second term could move more towards protectionism. During his first term, he had blocked dispute resolution process of World Trade Organisation and had removed duty-free access under the decades-old Generalised System of Preferences 9GSP) programme.

In another controversial remark, the former US president had threatened to not do business with those who are moving away from US dollar. “You leave the dollar and you’re not doing business with the United States because we are going to put a 100 percent tariff on your goods,” the Republican presidential nominee said at a rally in the battleground state of Wisconsin.

This could have an impact on New Delhi’s efforts to shift away from the US currency and deploy more rupee for trade.

Inflation and pharma sector

High trade barriers could fuel a spike in inflation and put the rate-cut trajectory off-course, resulting in higher income inequality, a note by Bernstein Research said. This could have a ‘detrimental’ impact on the middle class, which is already reeling under high prices.

Inflation, combined with Trump’s dislike for Obamacare could also hit India’s pharma exports, the research firm noted.

Markets and FII outflows

Irrespective of who takes control of the White House - Trump or Harris - the US election results is likely to cause a short-term volatility in the markets. A day before the elections on November 4, Dalal Street recorded an intra-day loss of close to 1,500 points, indicating uncertainty among investors. On November 6, Sensex was trading more than 800 points higher in the afternoon, while Nifty 50 jumped close to 250 points.

Emkay Global, however, in its latest report, said the Indian stock market could enjoy a short period of gains in case Trump receives the mandate. A Trump win is also likely to re-energise the dollar and renew investor interest in US assets which may, in turn, accelerate foreign portfolio outflows from India.

IT, immigration and carmakers

Trump’s win could negatively affect Indian IT companies as the US may overhaul its immigration policies and restrict applications under the H-1B visa.

Indian IT firms heavily rely on the US for business and therefore depend on H-1B visa. Trump had previously termed H1-B as "very bad" and "unfair" for US workers and, in 2020, issued a rule that hiked the minimum wage of an H1-B visaholder.

However, experts believe Trump's victory could lead to more anti-China policies, which could translate to gains for Indian exports. This could ensure more business for IT firms. This led to a rally in the Nifty IT index on November 6, rising over 3 percent on the Republican candidate's imminent victory.

However, auto component makers might benefit as demand for products in the US markets is expected to see a rise.

Oil and energy

Trump’s love for fossil fuel could lead to more production of US oil and gas, which could ease the global oil prices. This is likely to benefit Indian refiners and consumers. Electric vehicle and component makers, on the other hand, may be in for some volatility.