Opinion: Trump poses no major threat to Indian exports

What does a Trump admin look like as far as trade and FDI is concerned? Here, there are a number of factors at play. But first it is necessary to look at India’s trade and FDI trajectory from the US point of view.

It is known that the US is India’s second-largest trade partner with total trade in goods and services of about $200 billion, and here service exports play a major part. In addition, the US is one of the few countries with which India has a trade surplus. The major items (in the order of importance) are jewellery, pharma products including medical hardware, machinery and equipment. Smaller items are textiles and garments, etc.

What about FDI? US is the principal source of FDI with inflows of about $6 billion in 2023. This is actually an understatement as almost all the FDI coming in from Mauritius and Singapore (about 70% of the total FDI inflows) are linked to US-related companies.

In short, India is quite heavily invested in the US economy. How is this likely to change and what are future prospects for India with a Trump administration?

Consider the Trump hyperbole about high tariffs restricting US exports to India. In September last year, US trade representative Katherine Tai announced that India and the US had agreed to resolve their last outstanding dispute at the World Trade Organisation (WTO) and lower tariffs on certain US agricultural products, including frozen turkey, frozen duck, fresh blueberries, etc. So we are unlikely to see major restrictions on India’s exports as raising tariffs on some intermediates like pharma and machine tools would be self-destructive from the US point of view.

The real change is that the US-China tariff war will probably firm up, if not escalate. Here it should be noted that Trump, for all his bluster, is unlikely to allow inflation to increase by banning Chinese exports of consumer goods. Yet, he cannot downplay the somewhat frosty relations with China especially in his earlier allegation that China exports to US by “stealing “ American technology. This is where the China-plus-one strategy can be crucial for India.

It should be noted that the fastest growing segment (if not the largest) of India’s exports are electronic goods, aided by the PLI strategy and the attempt by many American companies (example Apple) to diversify their supply chain in the face of US-China uncertainties. But this “China plus one" strategy will need some important political decisions, namely, on India-China trade.

One cannot but sympathize with the view expressed in the recent Economic Survey, that it might be time to start considering Chinese FDI in India with all the security restrictions necessary. I have written extensively in these columns that FDI and trade are two sides of the same coin. FDI, in fact, tends to promote trade in the long run. In the case of Apple, its entry into India had to be facilitated by allowing a Chinese investor whose parts were critical to the final assembly of the iPhone.

It must be remembered that Chinese exports to the US in the last three decades have been based on assembly of parts imported from the East and Southeast Asian nations. Given China’s known economic uncertainties, this would be a good time to let in FDI in the form of India-incorporated Chinese companies for onward exports to the West, including the US. Given skill and technology deficiencies in India, this may be the only way to exploit the “China plus one" strategy, at least in the short run of the next two years or so. But can politics become pragmatic to incorporate this in India’s trade strategy? Time will tell.

Manoj Pant is the visiting professor at Shiv Nadar University