New Delhi: Donald Trump's victory signifies a monumental resurgence to the White House, representing an exceptional political revival that is poised to create significant impacts on the global economy, including that of India's.
In an exclusive interview with ETV Bharat, former chief economic advisor to the Government of India, Ashok Kumar Lahiri, who also served as the executive director at the Asian Development Bank, said, "The overall state of the global economy is troubling, especially considering Trump's intentions to reduce taxes.While such tax cuts may please affluent individuals, they would likely exacerbate the US fiscal deficit. An increase in the fiscal deficit could subsequently drive inflation higher, compelling the Federal Reserve to raise interest rates. This presents a rather unfavorable outlook".
Here's an excerpt from the interview:
ETV Bharat (ETB): What do you believe would be the major economic policy shifts now that Trump has returned to White House?
Ashok Kumar Lahiri (AKL): Donald Trump made several policy promises during his campaign. One of his primary commitments was to pursue financial deregulation. It is anticipated that he will adopt a favourable stance towards cryptocurrencies, potentially leading to an increase in their popularity, including Bitcoin and similar digital currencies. The circulation of these cryptocurrencies is expected to rise.
Another significant aspect of his agenda concerns environmental regulations. Trump pledged to eliminate certain restrictions related to oil drilling and coal mining. Additionally, he indicated plans to withdraw subsidies for green technologies, such as electric vehicles, solar energy, and wind power. The implications of these actions could be detrimental to the American economy, as these may hinder technological advancement within the country. While there are arguments supporting conventional energy sources based on cost, advancements in technology could eventually make renewable energy options more economically viable. The overall impact on the US economy remains a separate and complex issue.
The third point is the protectionist tendencies of Trump. He has expressed a desire to impose a 20 percent tariff on all US imports and a 60 percent tariff on imports from China. Also, he intends to remove China from the list of most-favoured nations. This protectionist approach, however, is likely to benefit some US industries that are currently struggling. Nonetheless, the majority of economists argue that such policies are detrimental to the US economy, potentially leading to higher prices and negatively impacting the global economy as well.
With Trump in the presidency and both the US Congress and Senate controlled by Republicans, he stands as the dominant figure within the Republican Party. Given his strong mandate, there is a concern that he may implement some of his campaign promises as actual policies.
ETB: What impact can Trump's America first policy have on global supply chains and how can that affect other economies?
AKL: The global supply chain has become increasingly integrated, and this trend is set to continue. Disruptions to this system have been particularly evident during the COVID-19 pandemic. The interconnected nature of supply chains mean any disruption can have a widespread impact, affecting various industries and economies negatively. However, amid these challenges, there are also opportunities. For instance, if the US, which is strongly opposed to Chinese subsidies and trade policies that distort trade, were to impose high tariffs on China, developing countries like India could seize this opportunity to expand their production capacity and fill the resulting gap.
ETB: What would be the immediate and long-term effects in the Indian economy under Trump 2.0
AKL: Regarding the immediate and long-term effects on the Indian economy under the Trump 2.0 administration, the outcomes will likely vary. In the short-term, the impact may not be as severe, as the stock markets have not collapsed. Investors are cautious, but the situation is far from dire. However, the long-term implications are uncertain. The US economy, being the largest in the world, plays a crucial role in global macroeconomic stability. If the US economy faces challenges, it could have a ripple effect on the global economy. The immediate impact on India's economy, therefore, depends on the strength of its relationship with the US, particularly in terms of trade and technology transfer. While it's unlikely that India will suffer, there's also the possibility of benefiting from US policies. The future remains unpredictable, but the potential for positive outcomes is there.
ETB: How might Trump 2.0 affect US-India trade relations? Are there any specific sectors where we can see major changes, either positive or negative?
AKL: Trump is strongly against Obamacare, which is often referred to as affordable care. If Obamacare is removed, the US pharmaceutical industry might benefit. However, generic drugs from India could suffer. Despite this, the US industry is strong, with new drugs and formulations being developed. It's uncertain how the Indian pharmaceutical industry will be affected by the situation, but it's believed that the best will prevail. There's hope that the industry will mature and navigate through challenges.
The second point is about technology transfer, which has seen progress with the US and could potentially increase with a shift in investment from China to India, depending on the US-China relationship. The trade relations between the US and China are generally good, though it's hoped they won't be as harsh on India as on China. Trump's comment about India being the tariff king was seen as harsh, but US tariffs have actually become more favourable over time, and the industry has evolved from previous challenges.
ETB: Trump has been known to push for reducing trade deficits . Do you think this could lead to tariff hikes or trade restrictions on Indian goods . How should India prepare?
AKL: Certainly, there are challenges we face. However, we can always advocate for bilateral agreements, urging the United States to refrain from treating us inequitably. This includes ensuring we are not lumped together with nations adhering to the most stringent trade policies. Nonetheless, it is imperative that we prioritize competitiveness. The focus should be on enhancing our ability to compete in the global market. It is essential to recognize that a country's decision to purchase goods from one another is primarily driven by economic considerations. The primary motivation is the cost-effectiveness of the products, with quality often being comparable, if not superior, to alternatives available elsewhere. Therefore, by improving our productivity, product quality, and pricing competitiveness, we can position ourselves favorably in the global marketplace. Regarding the possibility of securing a preferential trade agreement for India, my stance remains uncertain. There is a degree of skepticism surrounding the feasibility of such an endeavor.
ETB: Trump's tax reforms and infrastructure policies were popular in his first term. If similar policies are reintroduced, what kind of spillover effects could they have on Indian companies and investments
AKL: It is my conviction that several of our infrastructure companies have reached a level of maturity and are now comparable to the finest in the world. Therefore, if Trump prioritizes infrastructure, there should be opportunities for these companies to engage and gain advantages. Additionally, there is potential for some positive impact on India as a result of this focus on infrastructure. However, the extent of this impact remains uncertain, and providing a definitive answer is challenging.
ETB: How has the ongoing issue of Taiwan affected US-China relations, and what do you predict for the future of this dispute?
AKL: In the US-China relationship, we have seen actions and reactions. One side takes a step, and the other responds. However, there is an element of bluffing involved, as eventually, one party will choose to de-escalate, leading to a return to normalcy. Will this happen quickly? Unlikely. Over time, we can only speculate about the outcomes, especially since there are multiple factors at play. First, we need to consider how the Ukraine-Russia conflict will unfold. Next, the situation in the Middle East, particularly regarding Israel and Gaza, is crucial. Additionally, the dynamics between Israel and Iran are important.
Lastly, we must not overlook the potential surprises in the China-Taiwan relationship. Currently, the China-Taiwan situation seems to be at a standstill, but things can change unexpectedly. I’m not an expert in international relations, but I believe the China-US relationship will only improve when both nations recognize the harm they are causing each other. A compromise could benefit both countries and the world. However, the rise or fall of a superpower often comes with challenges. China is currently asserting its power, which may have lasting effects.
