How Will The U.S. Presidential Election Outcome Impact India?
It is an oft-repeated fact, but it surely deserves to be mentioned again: The Economist magazine rates Trump winning the U.S. elections as the third biggest source of global risk and gives the event the same impact score as that of rise of jihadi terrorism, currency depreciation, and a clash of arms in the South China Sea. Indeed, Trump’s presidency has the potential to be a total disaster for global trade and a recovering, yet fragile global economy. Whatever can be gleaned from his inconsistent and incoherent statements point to the fact that free trade will get affected and thus, any country that is entangled in the globalised economy cannot be immune from the effects.
Uncertainty As One Of The Bigger Risks
Right at the outset, one of the biggest risks would be that not all the risks are known. In all of the political rallies, speeches, media appearances, and the presidential debates, Trump has not managed to outline a clear policy on anything that matters. He has whined about the things that are perceived as problems, such as bad trade deals and illegal immigrants, but has not given any concrete policy proposals to tackle these issues.
Political, economic and policy uncertainty is feared by businesses as their exposure to unhedged risks increases. Even at times when he has expressed his opinion on issues, he has vacillated so many times that it has not added certainty at any level. Often, he has stated his stand, changed it and then, reverted to the original all in a matter of few days. True, changing official policy is much harder than uttering statements in public, yet, there seems to be an inherent unpredictability about Trump that global business finds distasteful.
Clinton, on the other hand, is expected to largely work within the system and has outlined her stand on other issues, which allows businesses to plan for and prepare, irrespective of whether they agree with the policy.
To analyse the effects of the U.S. presidential election outcomes on the Indian economy, the two key issues to look at are trade and investment, and immigration.
Isolationist Policies Will Hurt India
Trump’s vision of a ‘Great America’ is regressive and outdated. It involves an America that will close its doors to trade and immigration. Trump sincerely believes that the developing world is robbing Americans of their jobs and as a solution, he proposes to engage in trade wars by implementing tariffs and quotas.
While much of his attention has been reserved for China and their cheap exports, India has not been completely missed. He has expressed explicit displeasure that American companies outsource work to India, while the U.S. has a high unemployment rate.
In his book “Time to Get Tough”, Trump proposed a 15 percent tax on companies for outsourcing jobs to other countries and a 20 percent tax for importing goods and services. Since then, this figure has been in a state of flux, but the idea seems consistent. He also proposed that he would levy a 35 percent tax on automobiles imported from Mexico.
Clinton too has spoken against unfettered outsourcing and has called for eliminating tax breaks that encourage outsourcing. However, she broadly seems to understand how the real economy works and that businesses will go to the place that provides them with the lowest cost of production.
She has defended the concept of Americans outsourcing some of the jobs to India, but does not want to be seen as someone actively encouraging outsourcing.
One definite area of concern is that the Indian software industry is disproportionately dependent on the U.S. for its exports. India’s software services accounted for $82 billion worth of exports in 2014-15 and the bulk of it was from the U.S. Though it is much tougher to levy tariffs on a piece of code than on physical shipments from China, it is largely expected to negatively affect the Indian software industry.
With the U.S. being an important member of the World Trade Organisation, Trump cannot be selective in his trade policy. The U.S. would have to have a similar tariff rate for similar goods irrespective of its origins. Thus, a tariff on auto imports from Mexico or Japan would similarly harm India’s plans to “Make in India” and export to the U.S. This would hamper, for example, Ford’s plans to triple the number of car exports out of India.
In contrast, Clinton is largely expected to strengthen trade relations with India. She is familiar with India and has had a long-standing relationship with the country: She first visited India in 1995 as the First Lady. As a U.S. Senator, she co-chaired the Senate India Caucus and supported the India-U.S. civil nuclear agreement. She continued her engagement with India in her role as Secretary of State and sought increased dialogue on trade, defense, security and intelligence, and high technology. To understand why Clinton will accelerate the momentum of India-U.S. relationship, consider her speech made in Chennai in 2011, where she remarked that the U.S. is “betting on India’s future”.
We are betting that the opening of India’s markets to the world will produce a more prosperous India and a more prosperous South Asia… We are betting that advances in science and technology of all kinds will both enrich Indian lives and advance human knowledge everywhere.Hillary Clinton’s 2011 Speech In Chennai
Trump’s ascension to the Republican Party’s nominee for President can be explained, in part, to his strong views on immigration, which has managed to capture the American population’s imagination. The infamous ‘wall’ borders on the absurd and in all probability will never get built, but there are other areas where Trump realistically expects to do something to curb immigration – both legal and illegal.
Like on many other issues, he has overruled himself several times over the H-1B visas – a non-immigration visa which allows U.S. companies to hire highly talented professionals temporarily. The H-1B visa is extremely important to the Indian software industry. Software companies in India typically send some of their staff to work on-site with their clients in the U.S. through the H-1B visas. Trump, though his understanding of this visa is limited, was quoted as saying that he would want to scrap it.
Indians make up the greatest proportion of those receiving H-1B visas and any move to remove such a visa would have a disastrous effect on Indian companies and personnel.
Even if scrapping the visa is impractical, Trump would attempt to reduce such immigration by increasing the fee of the visa and even this could have a severe negative impact on the Indian IT industry. In fact, the recent hiking of the H-1B visa fee to $4,000 from $2,000 could cost the industry close to $400 million.
Hillary Clinton has also called for a “hard look” at the H-1B visa process, but anything that she would propose would definitely be of a less severe nature than what Trump could introduce.
There’s a bigger problem with Trump’s immigration policy. He is targeting an across the board reduction in immigration and not just the H-1B visas. Any likely action on immigration will make a significant dent in remittances coming in to India. As Ankit Panda, writes in the Diplomat, “In 2012, remittances to India stood at $70.39 billion and represented 4 percent of the country’s GDP. Non-resident Indians (NRIs) in the United States sent nearly $11 billion in remittances in 2012, representing the second greatest source of remittances after the United Arab Emirates”. Also, importantly, remittances form an important source of forex for India. For the past several years, the greatest contributions to our balance of payments has come from the software industry and remittances, both of which can be under threat under a Trump presidency.
The 2016 U.S. Presidential election is surreal and bizarre and is unfolding more like a reality show than an election to one of the most important posts in the world. While one should not expect anything extraordinary or radical from Clinton, Trump’s presidency poses a deep danger to the citizens of U.S. and the world. India will definitely not be immune to the global risk that is Donald J Trump. India will be sincerely hoping for Clinton to win the elections, at least for the fact that she is not Trump!
Anupam Manur is a Policy Analyst at the Takshashila Institution, a non-partisan, independent think tank and a school of public policy.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.