US Presidential election: What a Trump or Harris win may mean for India

Based on outcome, different challenges could be anticipated in trade, defence, and technology. India must be prepared for varied impacts

On November 5, the US will elect a new President, a decision that will have huge implications not only for the US, but for the entire world, including India. A Kamala Harris victory would mark extraordinary firsts — the first Black woman and the first person of Indian heritage to be elected President. Her election would also be the most significant marker of the rise of the Indian diaspora in the US. But while she may bring some changes, expect broad continuity with Joe Biden’s policies. If Donald Trump wins a second term, a major upheaval in US policies and positions is likely.

Mr Trump would, as stated, end the war in Ukraine by forcing a deal that would likely end up in Putin keeping much of what Russia has occupied. While India was affected by rising oil and fertiliser prices in the early stage of this war, its subsequent purchase of discounted Russian crude helped limit the economic impact. Mr Trump’s transactional approach would again weaken the North Atlantic Treaty Organization (Nato) by putting in doubt guaranteed support if a member is attacked. Ms Harris, on the other hand, will maintain the Biden administration’s position on Ukraine and Nato. In West Asia, Mr Trump is staunchly pro-Israel and would support the country no matter what happens. Ms Harris supports an internationally accepted two-state solution and would take a tougher stance with Israel compared to President Biden. But President Biden’s weak handling of the conflict could lead to a wider war even before the election.

Mr Trump would again withdraw the US from the Paris Accords and give a freer path to energy companies to, as he says, “Drill, Baby, Drill.” This would keep oil prices low, benefiting India but undermining global efforts to combat climate change. He would also extend the tax cuts set to expire in 2025, further increasing fiscal deficits. He also plans to unleash huge tariff increases. In his first term Mr Trump’s tariffs — which President Biden kept—were enacted on about $300 billion of imports. This time, he proposes 60 per cent tariffs on China and 10-20 per cent tariffs on almost $3 trillion worth of imports, levels last seen in the Smoot-Hawley Tariff Act of 1930. Those beggar-thy-neighbour policies triggered a global trade war and deepened the global depression.

The US is now India’s largest trading partner, with bilateral trade in goods and services amounting to around $200 billion. India’s interests lie in a more open global trade system, not trade wars. Despite closer India-US relations, Mr Trump’s mercantilist mindset will likely focus on the small trade surplus India has with the US. Mr Trump labelled India “the Tariff King” and imposed a 25 per cent tariff on steel and 10 per cent on aluminium imports from India and removed India’s Generalised System of Preferences status. India was forced to retaliate by imposing higher tariffs on 28 US products. India’s tariffs are now even higher, and India’s heavy reliance on intermediate products from China for its pharmaceutical and information technology industries — including the new iPhone— could be a major vulnerability if a global trade war erupts.

Ms Harris would focus on supporting small businesses and greater competition to create jobs, along with social programmess like child tax credits, which have dramatically reduced poverty. She will increase corporation taxes from 21 per cent to 28 per cent, increase the income tax rate for the wealthy to around 40 per cent (where it was during Bill Clinton’s time), and raise the capital gains tax. India reduced its corporation tax rate to 25 per cent — after Mr Trump reduced US rates to 21 per cent in 2018 — to encourage more  investment. The cuts in the US did not encourage investment — but led to a huge increase in stock buybacks. Let’s hope we get better results in India.

When you add it all up, Mr Trump’s economic proposals are expected to increase the already substantial US debt by an additional $4-5 trillion, compared to around $1-2 trillion if Ms Harris is elected. Mr Trump would likely interfere with the US Federal Reserve’s interest rate policies and attempt to weaken the dollar, complicating macroeconomic management in developing countries like India.

Ms Harris is likely to maintain a hardline on China where the Biden administration’s export restrictions on strategic technologies have hurt China, in the short-term at least, much more than even Trump tariffs. She will maintain the US’s positions on climate change and foster clean energy technologies, encourage more friend-shoring — such as in chip manufacture—which has benefitted India. Ms Harris would likely target any further tariff increases on China only — as seen with the recent 100 per cent tariff on Chinese electric cars and 50 per cent on solar panels.

Mr Trump is expected to take a much tougher stance on immigration, which would likely result in even stricter limits on H1-B visas, more than 70 per cent of which are issued to Indians. India has benefitted from the establishment of around 2,000 Global Capability Centres, which have become hubs for research and innovation, employing approximately 1.5 million people. But, just as the shift of manufacturing to China created a backlash against the loss of blue-collar jobs — and led to Mr Trump’s rise in 2016 — expect eventually a similar backlash against the loss of white-collar jobs outsourced to India, irrespective of who comes to power.

Both are likely to expand bilateral defence and technology ties with India to counter China. India should avail of these opportunities and cooperate more with the US in the QUAD — with Japan and Australia — an initiative of the late Japanese Prime Minister Shinzo Abe that Mr Trump revived in 2017—as well as in the 14-country Indo-Pacific Economic Framework for Prosperity (IPEF), a Biden initiative, and in other parts of the world, including Africa. At the QUAD meeting last month, with no border agreement with China in sight, India deepened its engagement as part of its strategy of multi-alignment, signing on to three of the four pillars of the IPEF, but not the trade pillar.

Despite no trade agreement, the potential for bilateral US-India trade and economic relations remains huge and could reach $500-$600 billion by 2030 — especially in artificial intelligence and IT services, processed foods, healthcare, clean energy technologies, and defence production. India’s ambition to become an advanced country by 2047 is predicated on close economic, technological and defence cooperation with the US, regardless of who comes to power. But expect new and differing challenges depending on how the US votes, and India must be prepared to deal with them.

The writer is distinguished visiting scholar, George Washington University, and co-author of Unshackling India (Harper-Collins India 2021), declared Best New Book in Economics by the Financial Times for 2022