US elections 2024 outcome could reshape India trade ties

According to experts, the policies of both US presidential candidates impact South Asian countries' export sectors, regulatory alignment, and defence partnerships differently.

While Donald Trump’s America First agenda may lead to higher tariffs on Indian goods, especially in key sectors like automobiles, wines, textiles, and pharmaceuticals, Kamala Harris's presidency may avoid escalating tariffs with allies like India and offer more predictability, benefiting Indian exports.

With over 80% of India’s IT export earnings coming from the US, the sector remains highly vulnerable to shifts in US visa policies, said Ajay Srivastava, former trade service official and the founder of the economic think tank Global Trade Research Initiative (GTRI).

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“A Trump presidency could bring direct challenges for India in tariffs, outsourcing, etc., while a Harris administration would likely maintain a more balanced relationship. Both candidates, however, are expected to focus on supply-chain resilience and reducing reliance on China, aligning with some of India’s strategic goals," he said.

“If Trump wins, he may extend tariffs beyond China to include India and other countries. Trump has previously called India a large tariff abuser, suggesting that a second term could bring tougher trade negotiations," he added.

India-US trade

In value terms, India's US exports exceeded imports by $35.33 billion during 2023-24, against the overall trade deficit of $241.14 billion during the fiscal year.

During 2023-24, India's merchandise exports to the US stood at $77.52 billion in value terms, down 1.31% year-on-year, while imports stood at $42.19 billion, down 17.04% on-year, according to data from the ministry of commerce and industry.

During the first half of the current fiscal, India's merchandise exports to the US stood at $40.33 billion in value terms, up 5.47% on-year, while imports stood at $22.31 billion, up 2.28% on-year. India had an overall $137.5 billion merchandise trade deficit in H1FY25.

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Among India's top exports to the US are drug formulations, pharmaceuticals, telecom instruments, pearls, precious and semi-precious stones, petroleum products, gold, cotton, iron ore, and electric machinery.

India's top imports from the US consist of crude oil, petroleum products, coal, ships and boats, electric machinery, computer hardware, and raw plastic materials.

Meanwhile, India's total exports of software services, including services delivered by foreign affiliates of Indian companies, rose to $205.2 billion during 2023-24 from $200.6 billion in 2022-23, according to a recent Reserve Bank of India (RBI) survey.

The US was the major software export destination with a 54% share, followed by Europe with a 31% share.

Impact on trade

Trump is expected to tighten H-1B visa rules, raising costs and slowing growth for Indian IT firms. Harris, on the other hand, was expected to take a more moderate approach, likely maintaining access to the US market for Indian companies.

Sectors with significant exposure to US policies, like IT services, pharmaceuticals, and textiles, could need a reorientation because of changes in trade policies and healthcare reforms, said Manoranjan Sharma, chief economist at Infomerics Ratings and former chief economist at the Canara Bank.

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"IT, pharmaceuticals, and textile sectors, which export significantly to the US, could be dented. However, should Donald Trump romp home, India’s domestic growth path could get an impetus because of Trump’s focus on keeping oil prices low and stable," he added.

Impact on bond yields

According to market experts, Harris’ rise had been met with a stock market rally glued on expectations of economic stability and controlled inflation, with more predictable fiscal policy likely to help in a soft landing. However, Trump's potential victory, coupled with potential Republican control, could shoot yields higher due to anticipated increases in deficit spending, inflation risks, and potential tax cuts.

“Now coming to the domestic G-sec market. The Trump card possibility could lead to the rise of the US treasury 10-year yields, which would, most likely, have a butterfly effect resulting in the rise of the Indian 10-year benchmark yield to above 6.90%," said Shrisha Acharya, vice-president, Anand Rathi Global Finance.

"On the other side, Harris’ victory would not hinder the market sentiment a lot and Indian 10-year benchmark yield to remain in the range of 6.65% to 6.90%," Acharya added.

Risks to APAC credit stability

In a recent report, Fitch Ratings said Asia Pacific (APAC) regional credit conditions, which includes India, could be challenged by trade protectionism, weaker economic growth and mounting geopolitical tensions if Trump wins a second presidential term.

"Our analysis focuses on the potential for major policy shifts if the Republican candidate wins November’s US presidential election. We do not assess the positions of his opponent, vice-president Harris, in detail, but anticipate greater continuity of President Joe Biden’s policy positions if she wins," the rating agency said.

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"Our analysis suggests that within Asia, under a worst-case scenario with retaliation from the US’s trading partners, growth in China, Korea and Vietnam would be particularly affected, with real gross domestic product in 2028 being 1% or more below the level under our current baseline. India, which is less export-oriented than many other Asian economies, would be relatively unaffected," it added.

According to AP projections, Trump has secured 248 electoral votes, with Kamala Harris trailing at 214. A total of 270 votes are required for a candidate to win the elections.