Sequels rarely have the same impact as the original. The second Donald Trump presidency that the good people of America have foisted on themselves, and the world, is likely to prove different. Trump could double down on his disruptive campaign promises and create havoc on a scale unseen during his 2017-20 term.
His promise to levy an import duty of 60% on shipments from China and 10-20% across the board, if acted upon, is likely to set off a trade war that would lower economic growth for the entire world.
His oft-stated conviction that climate change is a hoax could lead him to reverse several of the Joe Biden administration’s green initiatives, save those for electric mobility, which, thanks to Trump’s proximity to Tesla chief Elon Musk, could be spared.
Trump and his Veep-elect J.D. Vance espouse letting the world take care of itself while the US does likewise. This would erode the faith of Europe and the Asian duo of Japan and South Korea in the reliability of America’s nuclear shield, plausibly inducing them to develop their own nukes.
Europe may find that French President Emmanuel Macron’s insistence on strategic capability outside the US-led Nato was prescience rather than self-projection. The world could see stepped-up spending on arms, even as weaker economic growth hits living standards.
Trump’s campaign held out three sources of US inflation. Steep import tariffs would make everyday goods dearer in America. Immigration clamps would reduce the supply of relatively cheap labour, tighten its labour market and push up wages.
Bigger pay-cheques would be passed on as higher prices. Trump also wants steep tax cuts. However, with America’s growth rate already the envy of the rich world, the scope for tax cuts—in tandem with deregulation—to accelerate its economy any further is limited.
Therefore, lower tax rates are unlikely to produce the additional revenue needed to offset direct tax losses. With no ‘Laffer curve’ bonus, the US fiscal deficit would shoot up. Trump, who took the fisc to a quarter of GDP when covid struck in 2020, seems conditioned to think that budget gaps do not matter.
Deficit-driven excess demand would add to inflationary pressures. Interest rates would spike, making credit dearer too. Should he try forcing the Fed to keep rates low, it would worsen the scenario. But then, perhaps Trump’s term in office would be over by the time the worst of it plays out, leaving the can for someone else to carry.
Ukraine will probably come under US pressure to cede territory and end the war. As for Gaza, nobody can guess what Trump will do, if anything. In relative terms, India is placed comfortably.
New Delhi’s relations with the US are based on strategic convergence imposed by the looming presence of America’s only strategic rival, China, not on any leader’s predilections.
A powerful India can be an Asian bulwark. This reality should serve India well, whatever cribs Trump might have about India’s import duties. What about H1B visas? Trump’s ally Musk is all for a liberal visa regime for the highly skilled.
America’s tech industry needs Indian talent, whether there or here. Meanwhile, the US stock market’s celebration of likely lower taxes may push up Indian stocks as well. The Fed’s rate-cutting schedule is unlikely to alter, and that should send money flowing India’s way.
Apart from potential trade instability, we stand to lose only indirectly—from slackening climate action and normative regression on gender rights and diversity that Trump’s victory signals.
