Donald Trump returns to White House with an unexpected win

Chennai: Four years after leaving the White House in the wake of the riot on Capitol Hill, Donald Trump made a historic comeback on Wednesday, becoming the only US President in 132 years to be re-elected after a break.

Trump beat Democrat Kamala Harris 277 to 224 seats to be elected the 47th President of the US, with a few more results left. To become President, the threshold is 270 seats. Trump also won the popular vote, the first by a Republican candidate since 2004, securing 71 million votes against Harris’ 66 million. Trump’s Republican party also seized control of the Senate, and was poised to win the House of Representatives.

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The last US President to return to White House was Grover Cleveland, who was re-elected in 1892.

Markets celebrated the electoral outcome. The Dow Jones Index rose 427 points while the BSE Sensex jumped 901 points, even as governments across the world were reminded of Trump’s tumultuous first term.

“India, like the rest of the world, would need to deal with a more volatile White House. Tariffs and immigration may become sore points, but Trump 2.0 is likely to be milder in translating rhetoric to policy,” said Ajay Bisaria, a former diplomat. Dhruva Jaishankar, executive director, ORF America, expects a more assertive White House. “Trump 2.0 will be more professional and disciplined, but also more assertive in advancing certain key policies, particularly given the large electoral mandate,” he says.

The Indian government is confident of good ties. “Our relations with the previous Trump administration were good. We were even close to a trade deal,” Sanjeev Sanyal, member, Economic Advisory Council to the Prime Minister of India told Mint recently when discussing the prospects of a second Trump presidency. There is no reason to be apprehensive, he had added then.

Bisaria said Trump is likely to deepen the geopolitical engagement with India and the Quad grouping of India, US, Australia and Japan, while intensifying contestations with China. “As a result, India may attract more global supply chains and private investment. The defence and technology partnership is likely to get a boost,” he added.

Prime Minister Narendra Modi was one of the first leaders to congratulate Trump. “As you build on the successes of your previous term, I look forward to renewing our collaboration to further strengthen the India-US Comprehensive Global and Strategic Partnership,” Modi posted on X.

Tariff war

Given Trump’s rhetoric on tariffs, the world is bracing for chaos on the trade front. Take the case of tariffs on imports. Trump has promised to levy additional universal tariff of up to 20% on all imports. Worse, he has threatened a debilitating tariff, as high as 60%, on Chinese products and wants to strip the country of its most favoured nation status. During his first term, he called himself a ‘tariff man’ and levied additional duties on imports of washing machines, solar panels, steel and aluminium, triggering a trade war with China. Another round of trade war with China appears certain. “Expect an exacerbation of trade and technology war and a disrupted global supply chain,” says Madhavi Arora, chief economist, Emkay Global Financial Services Ltd.

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Trump may face resistance in executing a hefty tariff hike on Chinese goods. According to Peterson Institute for International Economics, a non-partisan think tank, a tariff hike like the one that has been promised will push up costs by as much as $1,700 a year for US households. In, other words, it could fuel inflation.

India Inc. may welcome a large tariff hike on Chinese products, as it will make its own products, especially in textiles, leather and other products more competitive and open up newer markets. But industrialists are also worried that it could be counter-productive. Loss of a large market such as the US will force Chinese manufacturers to dump their products in other markets such as India. India’s anti-dumping mechanism, they say, will be tested a lot and needs to be agile in protecting the local industry.

Weaker dollar

Trump has also talked against a strong dollar which, in his opinion, has weakened manufacturing in the US. He wants a weaker dollar. If he pursues that policy, many countries, especially emerging economies, will be impacted. A weaker dollar will make Indian exports less profitable and, in some cases, uncompetitive. It will also make India less attractive as an investment destination. But weakening the dollar is easier said than done. Easwar Prasad, senior professor off trade policy, Dyson School at Cornell University, in an article in the Foreign Policy magazine, says dollar’s strength comes from the rule of law that is religiously followed in the US, an independent Federal Reserve (the Fed) and a system of checks and balances that US democratic institutions are not undermined. In the recent years, the dollar has strengthened because of the US economy’s size and dynamism relative to other economies.

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Also, Trump has to enlist support of the Fed to weaken the dollar. That will involve printing dollars. Such a move will fuel inflation, something the Fed has been battling in recent years. Other measures such as selling dollars and buying foreign currencies in the market or imposition of capital controls will be expensive.

Immigration

With 61% of registered US voters saying immigration is a top priority, Trump turned it into a major election issue. He has claimed that there are as many as 25 million illegal migrants in the US and announced plans to start mass deportation of as many as a million of them immediately. India may not be impacted much here, but frictions could rise in the issue of H1B visas.

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Mass deportation, experts have warned, is not feasible economically and logistically. Peterson Institute has said deporting 1.3 million migrants would shrink the US economy by 2.1%, essentially creating a recession. That would impact global growth significantly. Logistically, mass deportation would be a nightmare, officials say. The US Immigration and Customs Enforcement, it is said, has capacity to deport just 30,000 people a month.

Global security

It is well-known that Trump is no great fan of collective security. In his first term, he had weakened the Trans-Atlantic alliance and the North Atlantic Treaty Organization, in particular. He has bombastically promised to halt the Russia-Ukraine war in a day. An end to the war will benefit all nations, including India. All nations are waiting with bated breath as to what his foreign policy will be. Some say he can embrace an isolationist approach. Why should Americans pay for the security of South Korea or Japan, Trump has asked several times. Europe could also be called to spend more on defence. Indian security experts are keenly watching how he will react to China’s growing belligerence.

Climate change

Climate change, clean energy and disaster management are areas where people fear Trump 2.0 will not put enough resources. That is where the paths of India and the US may differ. Trump has signalled that he will repeal some of the laws that the Biden administration introduced, such as CHIPS and Science Act and Inflation Reduction Act. America’s pace of decarbonization is set to slow down.