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What Trump's Presidency Means for India's Trade
Wed, 4 Jan Pre-Open

It's here. On 20th January, Donald Trump will take the Oath of Office and be sworn in as America's 45th president.

In the clamor, both positive and negative voices can be heard. Speculations about the effect his presidency will have on various countries are doing the rounds. The US is the biggest economy on earth by far; any decisions made by the US government will have a big impact.

Of the many things Trump plans to change as he takes office, one is terms of engagement with other countries. If Donald Trump follows through on everything he's said, it could really hurt India.

There is some good news though - he has promise to abandon the Trans-Pacific Partnership (TPP) trade deal.

The TPP is a trade agreement signed (but not yet ratified) by twelve countries accounting for 40% of global GDP and 33% of global trade. The landmark deal was slated to reduce tariffs and boost trade among the signatories. Unfortunately, neither China - hailed as the global factory - or India, are part of it.

If the deal goes through, that's bad news for non-member nations. We could lose out to member nations who will become preferred trade partners in a post-TPP world.

So if the deal goes for a toss, that would keep Indian exports competitive in the global framework. As we wrote in one of the premium editions of The 5 Minute WrapUp:

  • Anyway, that's good news for India. This is because TPP could pose a serious blow to India's trade ambitions, especially when it comes to exports.

    Take for instance, textiles. India is among the top textile exporters. A lot of companies in the organized and unorganized sector get a lion's share of their revenues from supplying to member nations of TPP. As per the industry reports, India exported US$ 41 billion of textiles. The import duties in regions like US range upto 50%. Vietnam being a key competitor in textile exports, and a TPP member as well, could jeopardize India's share by being able to sell at much lower tariff (as low as nil).

So with Trump unlikely to support TPP, India may heave a sigh of relief.

However, there are several other threats that Trump's presidency could pose for India.

For one, Trump seems to be against free trade. He agrees on opposition to free trade, opposition to trade agreements, and opposition to importing goods from lower wage countries.

If he restricts trade, Indian manufacturing and IT sector jobs will feel the impact.

Trump also plans to withdraw the US from the North American Free Trade Agreement (NAFTA). NAFTA enacts a free trade zone between the US, Canada, and Mexico. While the withdrawal will not impact us directly, the resulting adverse currency movements could hurt us.

For example, the Mexican Peso is under pressure these days. The falling currency boosts Mexican exports which could lead to a loss of global export market share for India.

All we can do now is wait and see.

Investors: note that this is a reminder that geopolitical equations and their changing nature deserve attention while taking into account an industry's growth prospects. And within an industry, it may pay well if the investors take care to analyze and give more weightage to companies that are better geared to withstand the impact of such developments in the future.

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