What Trumponomics Means for India: Impact on Trade, Immigration, and Economy

What’s in today’s article?

• Why in News?
• Economic Risks of Trump’s Policies: Inflation, Fiscal Deficit, and Global Market Uncertainties
• Trump’s Immigration Shift and Economic Proposals: Impacts on Indian Students and IT Sector
• Elon Musk’s Possible Role in US Administration: Implications for India
• Impact on H-1B visa landscape

Why in News?

Donald Trump’s proposed economic plans include a 20% tariff on all imports, over 200% duty on cars, mass deportations of undocumented immigrants, and extended tax cuts despite a record-high budget deficit. While these measures may challenge the US economy, they are seen as positive for American stocks and the Dollar, though they raise concerns for US treasuries given the risk of fiscal profligacy. 

For India, these moves could disrupt global supply chains, increase trade wars and tariff barriers, heighten forex volatility, and impact global fund flows, posing challenges for its growth. 

The Federal Reserve may reconsider its rate-cut agenda in response to a changing US macroeconomic landscape, which could, in turn, influence India’s monetary policy approach, with the RBI likely taking a cautious stance on rate cuts amid uncertainties.

Economic Risks of Trump’s Policies: Inflation, Fiscal Deficit, and Global Market Uncertainties

• Higher tariffs and trade wars under Trump’s policies are expected to increase inflation in the US. 
• Combined with rising deficits and potential shifts in institutional trust, foreign lenders may reconsider their support for US Treasury debt, echoing a shift similar to the 2022 freeze of Russian assets.
  •  The 2022 freeze of Russian assets drove global central banks to favor physical gold over financial derivatives. 
• Trump’s proposed tax cuts and protectionist measures might stimulate short-term economic growth but could heighten inflation, potentially forcing the Federal Reserve to end its rate-cutting cycle prematurely. 
• This shift could impact global monetary policies, with institutions like India’s RBI possibly delaying rate cuts to manage financial stability amidst bond and forex market volatility. 
• A weaker US dollar, as seen during Trump’s first term, and fiscal deficit pressures may add to inflationary risks and challenge global interest rate cycles.

Trump’s Immigration Shift and Economic Proposals: Impacts on Indian Students and IT Sector

• Trump’s mixed immigration stance includes a plan to curb both legal and illegal immigration, which could add inflationary pressure in a full-employment economy. 
• However, his recent proposal to automatically grant green cards to foreign nationals graduating from US colleges is seen as a positive for Indian students. 
• Economically, a weaker US dollar could benefit India by lowering import costs and supporting domestic investment. 
• Additionally, Trump’s plan to cut the corporate tax rate from 21% to 15% could boost budgets for US clients of Indian service providers, enhancing demand and driving gains in Indian IT stocks.

Elon Musk’s Possible Role in US Administration: Implications for India

• Elon Musk’s potential induction into the new administration could influence India’s policies. 
• New Delhi’s earlier proposal to lower import duties for Tesla fell short of Musk’s expectations, but with his strengthened influence, India may face added pressure to offer more favorable terms. 
• Additionally, lobbying efforts in areas like satellite spectrum allocation and space launches may intensify across key global markets, including India, as Musk’s interests expand.

Global Economic Watch: Fed Policy and China’s Stimulus Package

• Two key events are expected to impact global markets. First, the Federal Reserve’s November 6-7 policy meeting will provide updated inflation insights. 
• Second, China’s Standing Committee is likely to approve a substantial economic stimulus package aimed at boosting land purchases, bank recapitalization, and local debt refinancing. 
• Analysts warn that high US tariffs on Chinese goods could reduce China’s growth by over 2 percentage points, prompting Beijing to consider even larger fiscal stimulus—potentially reaching 2-3% of GDP annually. 
• This could divert foreign portfolio investment away from other markets, including India.

Impact on H-1B visa landscape

• Overview of the H-1B Visa Program
  • Purpose and Eligibility
    • The H-1B program allows American employers to hire foreign professionals in specialty occupations requiring specialized skills and at least a bachelor’s degree.
    • The program’s intent is to fill skill gaps in the US workforce by authorizing temporary employment for qualified individuals.
  • Annual Visa Caps and Exemptions
    • The H-1B visa cap is set at 65,000 new visas per fiscal year, with an additional 20,000 visas for individuals with a US Master’s degree or higher.
    • Certain employers, like higher education institutions, non-profits, and government research organizations, are exempt from this cap.
  • Indian Nationals’ Dominance in H-1B Visas
    • In fiscal year 2023, Indians made up 72.3% (279,000) of total H-1B visa approvals, followed by Chinese nationals at 11.7%.
• Historical H-1B Restrictions Under Trump During His First Term
  • Increased Scrutiny: Visa denial rates and Requests for Evidence (RFEs) rose sharply, with denial rates reaching 30% by 2020, compared to just 3.2% under Obama.
  • Higher Wage Requirements: The Trump administration attempted to raise wage floors for H-1B holders by 43-71%, though this measure was blocked in court.
  • Limits on Visa Numbers: Speculation arose about further limiting visas or prioritizing those with advanced skills.
• Planned Restrictions 
  • Trump’s “America First” stance suggests potential major reforms to limit immigration and prioritize American workers.
  • His 2024 campaign proposed reducing H-1B visa numbers and enforcing stricter eligibility, which may impact tech giants like Amazon and Google that rely on H-1B talent.
  • There is potential for shorter visa durations, especially for third-party placements, increasing uncertainty for both employers and employees.
• Impact on Indian Professionals
  • Tightened H-1B policies could reduce job prospects for Indian professionals in the US tech sector and complicate family reunifications for current visa holders.

Q.1. How could Trump’s economic policies affect India? 

Trump’s proposed tariffs, immigration shifts, and tax cuts could disrupt global supply chains, increase trade wars, and impact India’s growth. The rise in forex volatility and global fund flows could challenge India’s monetary policy and economic stability.

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Q.2. What will be the impact of Trump’s H-1B visa policies on India? 

Trump’s proposed restrictions on H-1B visas could reduce job opportunities for Indian IT professionals in the US, complicate family reunifications, and create uncertainty for employers relying on foreign talent in the tech sector.

News:  What Trumponomics means for India, the world | The Hindu | India Today