With the US election results now finalized, and former President Donald Trump reclaiming office, it is important to assess the potential consequences for global markets, particularly India. A Republican-led government under Trump could significantly reshape trade dynamics, with heightened tariffs and a more protectionist approach to international trade.
One of the key focal points of Trump's presidency was reducing the US trade deficit, a policy that heavily relied on increasing tariffs on imports. While these measures could help shrink the trade deficit, they risk pushing up inflation by making imported goods more expensive. This, in turn, could delay interest rate cuts by the US Federal Reserve, which is already grappling with persistent inflationary pressures.
For India, the consequences of such a policy shift could be twofold. First, certain sectors like Pharmaceuticals and IT may experience challenges. Indian generic drug manufacturers could face increased tariffs on their exports to the US, affecting the pharmaceutical industry. Meanwhile, India's IT sector might also see a slowdown in demand, as a trade war and economic slowdown could reduce discretionary spending in the US.
In addition, if the US delays interest rate cuts to combat inflation, foreign portfolio investment (FPI) flows into India could weaken. There is typically a negative correlation between US interest rates and FPI inflows to emerging markets, which could put further pressure on India's capital markets.
Lastly, a delay in rate cuts by the US Fed could have a ripple effect on India's monetary policy. With the Reserve Bank of India already facing slowing economic growth, any delay in rate cuts could deepen the challenges of managing domestic inflation and boosting investment sentiment.
In sum, a Trump administration is likely to bring renewed trade tensions, with potential adverse effects on India's key export sectors and capital inflows. The economic outlook for India will depend significantly on the global trade environment and how quickly the US economy adjusts to the policy changes that are likely to follow a Trump victory. Trade tariffs he will definitely bring in to China could be beneficial for India because Indian sectors will benefit like manufacturing. But tariffs on India will affect some sectors. In the US, product cost will increase and the inflation will go up. Potentially there could be impact but we have to wait to see what happens.