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The return of Donald Trump to the US presidency has placed India in a state of heightened alert, prompting a meticulous observation of the potential ramifications of his policies on the Indian economy. The Indian government, characterized by a cautious 'wait-and-see' approach, has initiated a series of inter-ministerial discussions and developed contingency strategies to mitigate any adverse effects. This proactive stance reflects the significant influence that US policy decisions can exert on India's economic landscape. Trump's trade policies, particularly his stance on tariffs, represent a significant area of focus for India. The Union Budget for 2025-26 incorporates plans to streamline and decrease customs duties on various products, potentially signaling a conciliatory approach towards the US and fostering improved trade relations. However, the underlying strategy also reflects India's need to proactively adjust to anticipated changes in the global trade environment.
Trump's inaugural day actions, including the launch of an investigation into US trade deficits and a proposed 25% tariff on imports from Canada and Mexico, have further amplified concerns in India. While the immediate impact on India remains unclear, analysts predict further actions concerning tariffs and trade. Experts like Ajay Srivastava of the Global Trade Research Initiative (GTRI) highlight the dual nature of the situation, suggesting that while potential economic disruptions exist, opportunities also arise for India to reform its energy strategies, enhance public health infrastructure, and reduce vulnerabilities in crucial sectors. The uncertainty surrounding Trump's trade plans necessitates comprehensive preparedness for potential surprises.
The prospect of a global tariff war is increasingly plausible, prompting analysis and predictions from various financial institutions. Macquarie's global strategists foresee a potential doubling of US average tariffs, from approximately 5% to 10%, although they consider sweeping punitive tariffs unlikely, even as a bargaining tactic. Nomura analysts, on the other hand, predict that China will experience the most substantial tariff increases, impacting numerous consumer goods not targeted during Trump's first term. They anticipate a cumulative 35-percentage-point increase in tariffs on Chinese goods, alongside additional tariffs on European and Asian nations, and a 5% tariff on Mexican imports. The projected outcome is an effective tariff rate on US imports reaching around 10%. These varying projections highlight the uncertainty and complexity of predicting the ultimate effect of Trump's policies.
Beyond trade, Trump's other executive orders present additional concerns. His proposal to revoke automatic citizenship for children born in the US to non-citizen parents has sparked considerable worry among Indian families. This policy could directly impact many children born to Indian parents holding US green cards or serving as Indian diplomatic personnel, potentially influencing their long-term residence and citizenship status. The legal challenges likely to ensue add another layer of complexity and uncertainty. Furthermore, the potential influence of Trump's policies on inflation and the Indian rupee requires monitoring. There are fears that higher inflation in the US, prompted by Trump's actions, may lead the Federal Reserve to raise interest rates, generating broader repercussions for the global economy, including India.
In conclusion, the return of Donald Trump to power signals a period of significant uncertainty for India. While the Indian government's strategy of watchful waiting is a prudent approach, the multifaceted nature of potential economic and social consequences necessitates proactive planning and preparedness across various sectors. The need to address potential tariff hikes, navigate evolving trade relations, and anticipate and mitigate the indirect impacts on inflation and currency exchange rates highlight the complexity of the challenges ahead. The situation demands a versatile and adaptive response from Indian policymakers to effectively manage the potential upsides and downsides of the shifting global economic landscape under Trump 2.0.
Source: Trump 2.0: Government in wait and watch mode, strategies in place for various scenarios