Trump or Harris? Economic volatility is another election result we can expect.

As curtains come down on a bizarre political drama, how the outcome of today’s election to the White House will impact India’s economy is the big question. That who takes office as the next US president will affect us is not in doubt. 

US policies matter hugely to the world at large and even more to emerging economies like ours. One of the biggest differences between the two candidates lies in their respect (or lack thereof) for rules and institutions, whether in the realm of trade, monetary policy or fiscal policy. 

Republican candidate Donald Trump is openly dismissive of the World Trade Organization (WTO), the US Federal Reserve and the Congressional Budget Office; Democrat Kamala Harris is less so.

Take trade. Trump, who proudly declared himself a “tariff man,” has said he will impose a 10-20% tariff on all US imports, with a punitive 60% duty on Chinese goods. He also wants outsourcing curbed to “build American, buy American and hire American,” and has threatened to “punish those who ship jobs and factories overseas.” 

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That could hit Indian exports adversely. So would a weak dollar, if Trump manages to force its exchange rate down, as he has indicated he would do. Harris may seem less in-your-face. But she seems to see nothing wrong in a world where the rules of trade are skewed in favour of the US. 

She is also not against tariffs on China “when it breaks the rules.” Left unstated is that, in her view, it is the US, not the WTO, that will decide what is kosher. 

And that is not good news for India, which has long advocated a rule-based multilateral system of the kind espoused by the WTO. On monetary policy, Trump has shown little respect for institutions, not even the Fed, whose independence has long been respected by US presidents for good reason. 

Should he win power, his words suggest he will dismiss Fed chair Jerome Powell and try getting it to reduce interest rates at his whim, a scenario that—if it somehow materializes—could spell even more trouble if Trump’s tariffs prove inflationary. 

Harris, in contrast, is likely to let Powell complete his term (till May 2026). In either case, volatility is here to stay, but we may have to watch out more for choppy inflows and outflows of hot money—and assets exposed to these—if the Fed’s rate policy were to toe a political line. 

On the fiscal front, a Trump presidency is likely to see the US budget deficit and public debt balloon as tax giveaways become the norm. Harris is likely to be more circumspect, but she has not said enough on how exactly she plans to deliver on her promise of being a “champion of the middle-class.” 

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What’s clear is that a fiscal pullback is not a priority for her. And why should it be, given that the post-Bretton Woods order—with the exorbitant privilege it confers on the dollar—allows America to live beyond its means (read, run deficits) at the expense of poorer nations eager to stack up US Treasury bonds? But recklessly rising deficits are bound to drive up borrowing costs and drag global growth down.

Trump’s words are mostly bluster; Harris’s, more guarded. But there’s no getting away from the fact that, regardless of who is sworn in as the 47th president on 20 January 2025, US economic interests will triumph over those of others. 

In a polarized world bent on raising protectionist barriers and reversing critical aspects of globalization, it’s each country for itself. India included.

Also read: US Election 2024: What if Kamala Harris and Donald Trump fail to secure electoral college majority?