Trump 2.0 and India: Trumping Tariff Tensions, Transactionalism Amidst Geopolitical Rebalancing

It is tough to make any predictions regarding Trump 2.0. While some commentators believe that his policies will be as disruptionist as in his previous stint, others are of the opinion that he may be transactional but less unpredictable. During the presidential campaign, Trump had said that he would impose tariffs on countries which are trading in non-dollar currencies. It remains to be seen if he goes ahead with such measures given that several countries with close links to the US, including India, have been favouring de-dollarisation. It also remains to be seen how Trump 2.0 would perceive the Chabahar project given the current turmoil in the Middle East.

Global leaders, analysts and commentators are focusing on US President-elect Donald Trump’s likely policies – domestic and external – once he takes over in early 2025. Two of the issues which Trump focused on during his campaign were immigration and rising inflation. According to a study by the Peterson Institute of International Economics — a Washington DC-based think tank – some of Trump’s economic proposals discussed during the campaign if implemented could lead to further inflation.

Another tariff war under Trump 2.0?

During the election campaign, Trump repeatedly spoke about tariffs on countries – including China, Brazil and India.

While the US President-Elect said during the election campaign that he would impose 60% tariffs on Chinese imports, he has also said that he will impose tariffs on India and referred to India as a tariff ‘abuser‘ (in October 2020, Trump had referred to India as a “tariff king”).

During his earlier tenure as US President, Trump had imposed tariffs on aluminium and steel imports from many countries. This impacted a little over 2% of India’s trade with the US (many of these tariffs were removed during the Biden administration). He had also removed the Generalized System of Preferences (GSP) in 2019. The GSP provides duty-free entry for thousands of products from designated beneficiary countries. India was a major beneficiary of this program with $ 5.7 billion worth of Indian exports to the US having been given duty-free status.

Stringent immigration regulations ahead?

Trump had also made regulations pertaining to H1B visas more stringent and this impacted India’s IT sector. The rate of H1B rejections had risen significantly during Trump’s earlier tenure. It would be pertinent to point out that Indians received over 70% of the H1B visas issued by the US in 2023. While the bulk of these visas are issued to IT professionals, those in STEM professions (Science, Technology, Engineering and Management) also avail of the H1B visa. It is tough to make forecasts regarding Trump’s likely approach to such crucial issues given his transactional nature.

The Trump impact: Opportunities and challenges for India

While the attention is on Trump’s likely approach vis-à-vis issues like tariffs, there are other issues on which Trump 2.0’s policies will impact India. First, Trump’s approach vis-à-vis Iran. While Washington, during Trump’s earlier stint as US President, had pulled out of the JCPOA 2015 (Iran Nuclear Deal) in 2018, this impacted India’s ties with Iran. India had stopped the purchase of Iranian oil in May 2019 and the progress on Chabahar Port Project, dubbed as India’s gateway to Afghanistan and Central Asia had also slowed down. In recent years, India has been paying more attention to the Chabahar Project – India signed a 10-year agreement with Iran in May 2024 for the operation of the Chabahar Port (India is looking to Chabahar not only as a regional gateway but also for strengthening economic links with Europe). While the Chabahar Port Project was kept outside the framework of sanctions during Trump’s earlier presidency, it remains to be seen how Trump 2.0 would perceive the project given the current turmoil in the Middle East.

While the Chabahar Port Project was kept outside the framework of sanctions during Trump’s earlier presidency, it remains to be seen how Trump 2.0 would perceive the project given the current turmoil in the Middle East.

Second, if US-China ties witness further strains, several companies will be compelled to seek to invest in other countries including India. This could benefit India and even offset the impact of possible tariffs by the US. Pharma, automotive and electronics companies may set up operations in India and other Asian countries.

Third, in recent years — in the aftermath of US sanctions on Russia — several countries have moved towards ‘de-dollarisation’ and begun trade in local currencies India too has been supporting de-dollarisation and has purchased oil in Indian Rupees from UAE in 2023. During the presidential campaign, Trump had said that he would impose tariffs on countries which are trading in non-dollar currencies. It remains to be seen if he goes ahead with such measures given that several countries with close links to the US, including India, have been favouring de-dollarisation.

Another important aspect is whether any reduction of tensions between Washington DC and Moscow, under a Trump presidency, may result in the relaxation of sanctions against Russia. This will give space to countries which have close economic links with Moscow.

In conclusion, it is tough to make any predictions regarding Trump 2.0. While some commentators believe that his policies will be as disruptionist as in his previous stint, others are of the opinion that he may be transactional but less unpredictable. While there are likely to be divergences with India over issues like tariffs and his approach towards Iran, there are several opportunities as well.

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