US Election 2024: Impact of Donald Trump's second term on India - Decoded

The US presidential election in 2024 holds significant implications for India's economy, trade, and stock markets. With the US being India’s largest trading partner and key investor, the policies of either Donald Trump or Kamala Harris could shape the bilateral relationship in vital areas like defence, trade, and technology. 

Here's what a Trump or Harris victory could mean for India.

If Donald Trump Wins

A second Trump presidency could bring substantial changes to the economic scenario, both in the US and for its global partners, including India. Trump's policies are expected to be more protectionist, inflationary, and focused on reshoring manufacturing jobs to the US, which could have both positive and negative consequences for India.

Defence and Strategic Ties

On the defence front, Trump has been a strong advocate for bolstering ties with India. A Trump victory would likely continue India’s strategic relationship with the US, including defence deals and collaborations on counterterrorism, regional security, and maritime defence. However, Trump’s focus on “America First” policies could lead to less focus on multilateral engagements, which might impact global security dynamics.

Trade and Tariffs: Impact on Indian Exports

Trump’s approach to trade has historically been centred around raising tariffs to protect US industries, particularly against China. If Trump returns to office, India’s exports to the US could be affected by higher tariffs, especially in sectors like pharmaceuticals, IT services, and manufacturing. Indian generic drug exports to the US might face higher import duties, which could hurt the pharmaceutical sector. Similarly, a slowdown in US discretionary spending due to the trade war could negatively impact Indian IT and service exports, as many Indian companies rely heavily on the US market.

Inflation and Commodities: Benefiting Certain Sectors

Trump’s economic policies are expected to be inflationary, particularly if tariffs are imposed on Chinese goods and more US jobs are reshored. Inflation tends to benefit commodity-linked sectors, such as metals, oil, and natural resources. This could offer a boost to India's energy and commodity sectors. Additionally, higher US fiscal spending and infrastructure investments could provide opportunities for Indian companies involved in construction, engineering, and raw materials.

Currency and Investment Flows: A Stronger US Dollar

Under Trump, a stronger US dollar could put pressure on global markets and could also reduce Foreign Portfolio Investments (FPI) into India. If interest rates in the US remain high, the dollar would appreciate, making Indian assets less attractive to international investors. This could reduce capital inflows into the Indian stock market, which has already been facing pressure from slowing earnings growth.

If Kamala Harris Wins

If Kamala Harris wins the 2024 election, the focus will likely shift towards maintaining the status quo in US policies. Harris has indicated a preference for continuity in domestic and foreign policies, which could provide a stable environment for India to continue its economic growth and strategic partnership with the US.

Trade and Tariffs: Continuation of Existing Policies

While Harris is unlikely to roll back the tariffs imposed during the Trump administration, she may not take a more aggressive stance on protectionism. For India, this means that the existing trade barriers, particularly on goods like pharmaceuticals, gems, and IT services, would likely remain unchanged. While some sectors may face tariff pressures, Indian exports to the US would continue without the drastic changes that a second Trump term could bring.

Global Economic Stability: Soft-Landing for India’s Growth

Harris’ policies are expected to favour global stability, with an emphasis on multilateral cooperation rather than confrontation. This could lead to more stable economic growth for India, particularly in sectors like IT, pharmaceuticals, and services, where the US is a key partner. The relatively neutral approach to trade and tariffs would help Indian businesses plan for the future without the uncertainty of escalating trade wars.

Defence and Foreign Policy: Stronger US-India Ties

On the defence front, Harris is likely to maintain a strong relationship with India, continuing the US’s strategic partnership in the Indo-Pacific region. This would include enhanced defence cooperation, joint military exercises, and counterterrorism collaboration. Additionally, Harris’ stance on global security would likely see continued support for Ukraine, NATO, and regional allies, which would bolster India’s own geopolitical standing.