Could India Benefit from the Trump Tariffs?
How a challenge for China could turn into a benefit for India
India has potential to be one of the few economies with capacity to benefit from the waves of uncertainty from a global trade bazooka the incoming Trump administration intends to aim at China and global markets generally.
There are two arguments as to why India stands to be one of the few if only economies to benefit from President-elect Donald Trump’s threats to impose blanket tariffs on America’s trading partners. They are:
First, New Delhi is in position to capture the fallout from an accelerating reshuffle in global supply chains triggered by Trump tariffs directed at China and other major US trading partners - and intended to promote repatriation of manufacturing to the US.
While the benefits could be substantial to an emerging market that is growing at a 7% annual clip, India only succeeds if it addresses a range of domestic economic hurdles, ranging from the adequacy of its skilled workforce to the public and private sectors’ willingness to compete to build out India’s export competitiveness.
Second, there may be a question or two - but frankly little doubt that Prime Minister Narendra Modi and President-elect Trump will continue the ‘bromance’ they struck up during Trump’s first term. Recall Texas’ rousing ‘Howdy Modi’ reception in 2019 and Modi’s return favor in 2020 when he feted Trump to a mega “Namaste Trump’ rally in Ahmedabad.
Both are political strongmen on the global stage. Both enjoy the high-profile limelight – and this plays to Modi’s advantage. Modi also understands transactional politics – Trump’s strength. Both are adept at playing personalities over agendas when it comes to relationships with world leaders.
These dynamics also are important to India which is amping its trade relationship with the US as well, now India’s second largest trade partner after falling behind China in 2023.
❝ What you are likely to see with India is the continuation of that upward-moving trajectory, closer cooperation, and greater determination to create an Asia where you have less dependence on China and greater interdependence with India…Only India has the scale and capacity to step in.
Fareed Zakaria, CNN geopolitical expert, in an interview with India Today TV’s News Director Rahul Kanwal after the US election.
India’s advantage in the supply chain reshuffle is its capacity for building out its manufacturing sector, a capacity that sets it apart from the current favorites of Vietnam and Malaysia. It is also the only economy in the world the IMF reports as growing by 7% annually.
Still, to succeed, New Delhi must harness the country’s demographic dividend, which means upping its game in education and skilled jobs training.
New Delhi also has to continue re-setting the protectionist mindset that first held sway following India’s independence in 1947. Much already has been done. Notable are India’s reforms of its internal tax structures to reduce red tape and ensure ease of doing business.
Still, more remains to be done. Regulatory frameworks must be simplified. While its infrastructure buildout has been impressive, more is needed if global businesses are to step up their investments in India as a reliable destination in the supply chain gambit.
There are also the domestic challenges presented by inflation and fiscal deficits. The economy must also continue to grow its external markets for India’s goods and services.
While not a member of APEC, New Delhi is partner to a range of international arrangements as well as regional pacts. It is partner in a series of bilateral trade pacts with Sri Lanka, Southeast Asia and Japan. New Delhi also is seriously focused on the Middle East, notably the UAE and India’s third largest trading partner.
President-elect Donald Trump, in a terse post on his Truth Social platform three days before America celebrated Thanksgiving, pledged that on his inauguration day, Jan. 20, he would order 25% tariffs on two of America’s largest, most long-standing trading partners, Canada and Mexico.
He tied the levies to an arm-twisting tactic to force Ottawa and Mexico City to clampdown on migrants and drugs crossing the border into the US.
He also declared China can expect “an additional 10% tariff, above any additional tariffs” on its exports to the US. It was unclear whether this was in addition to an earlier pledge of 60% tariffs against China and an end to China’s most-favored-nation-status as trading partner.
India has an opportunity to overcome its challenges and position itself to turn what is a mega challenge for China into advantage India. But the hurdles in doing so will remain considerable.
📍San Francisco