Trump's policies and their impact on India, world

No doubt, the election of Donald Trump as US president has introduced the biggest uncertainty in the global policy space. Within the short span of a few weeks, the Trump administration has already taken some steps which have unnerved many countries, including traditional allies and adversaries.

These include walking away from the US-led mega trade pact known as Trans-Pacific Partnership (TPP) (which would hurt Japan most), calling for renegotiation on Nafta (which would adversely affect the next door neighbour Mexico), dishonouring visas already granted to immigrants (though being challenged in the US law courts) as well as banning refugees and asylum seekers from seven Muslim-majority countries (very recently Iraq has been taken out of the list but it does not yet include Saudi Arabia and Pakistan though most of the terrorists have come from or trained there).

The other actions include introduction of a bill seeking to more than double the minimum wages of temporary H-1B visa workers (a majority of them are Indian IT staff) in the US which makes employment of such foreign workers not cost-effective any more and ordering the construction of a wall on the Mexican border (and making Mexico indirectly pay for the cost of the wall, through a 20% tariff on Mexican goods entering the US).

These steps also include threatening to declare China a currency manipulator and impose stiff tariffs on Chinese imports (though it would violate WTO rules and any trade war is going to affect the US in a big way in export sectors like aircrafts and agriculture) and finally, through its recently announced  trade policy agenda, indicating its intention to disobey WTO rules and rulings if these run contrary to US interests, thus hitting at the foundation of the rule-based multilateral trading system and unleashing a possible trade war between nations.

What are the possible implications of these steps for the rest of the world, especi­ally India? While better understanding with Russia and a tougher stand against Chinese goods would be broadly to India’s advantage, the biggest negative for us is the proposed legislation on raising the minimum wages for H-1B visa workers, irrespective of whether this is accompanied by a lowering of the cap on the number of H-1B visas.

The proposed minimum wage of $130,000 for IT workers (instead of $60,000 at present) would automatically exclude all workers, except those with exceptional skills and several years of experience. The upside would be that the Indian companies setting up operations in the
US would be forced to upgrade their work which can absorb workers earning $130,000 and above while making profits.

Also, companies – both Indian and American — would now shift their simpler operations and entrepreneurs would locate their startups in other parts of the world, including India, employing lower wage workers who would no longer be allowed to move to the US. This would mean more jobs in India, though workers would be worse off as they would be typically paid much less here than what they would have earned in the US.

Some IT businesses hope that eventually Trump, a business man, would understand that his immigration policy would hurt the global competitiveness of US firms and startups in US and in the longer-run innovation and job creation would suffer in the US. Also, unlike Trump’s executive orders, legislation which requires the support of Congressmen would be influenced by these considerations, specially as many influential industry leaders (like Microsoft, Apple, Google, Facebook, Cisco) are strongly lobbying against Trump’s policies.

The abandoning of TPP and imposition of tariffs on Chinese goods would provide China the incentive to forge a mega trading bloc which would include China, Japan, Sou­th Korea, the Association of Southeast Asian Nations (Asean) and India while excluding the US. It thus gives China another leeway to erode the US leadership in global economic affairs and project itself as the champion of free trade and the US as protectionist. The mutual benefits of globalisation, though increasingly questioned in the US and Europe, are not yet lost in Asian countries.

Counterweight to China

Though USA would like to see India as a political and economic counterweight to rising Chinese influence in Asia, the isolationist and protectionist stand of USA may force India to come closer to China, specially as India can no longer count on Russia as a dependable ally in its conflict against Pakistan or China.

Hopefully, China too would recognise the importance of the Indian market for its export of both goods and capital, given the economic slowdown along with rising wages and surplus investable funds in China. Articles in Chinese official media are already talking about the need for attracting lower cost Indian IT professionals for innovation in Chinese companies and startups.

As for fighting the fundamentalist terror groups sponsored by Pakistan against Indian interests, the Trump administration may be more effective as his business interests are more in India than in Pakistan. Trump may also feel less need to woo Pakistan as the US troops are more likely to withdraw faster from Afghanistan and hence Washington may not require Pakistan’s help to maintain the supply lines to the US troops in Afghanistan.

There are already some indications that Trump administration would seek quid pro quo for the military and economic aid that the US has been giving to Pakistan for many decades and part of the price may well be  more effective steps to curb terrorist activities.

Pakistan military would, of course, play all kinds of duplicitous acts to avoid effective action in addition to turning to its ‘all-weather friend’ China that  would come to its rescue, both diplomatically in UN and in economic and military terms, as this would provide China a much needed market for its military hardware and a gateway through Pakistan to the Arabian sea ports.

(The writer is former professor of economics, IIM-Calcutta)

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