How the US election outcome could shape trade and impact Indian companies

It's just a day before the United States of America goes to polls. Either Democrat and Vice President Kamala Harris will create history by becoming the first female president or Republican and former president Donald Trump will return to the White House. It’s the last lap, but the race is still tight. Whether its Trump or Harris, who wins could well have a very different impact on the economy, trade and capital markets, such varied are their policies and plans. 

Trump’s proposed policies of lower corporate taxes, higher tariffs on China/ rest of the world and incentives for local manufacturing are expansionary in nature and could lead to higher interest rates, a stronger US dollar and slowdown in global growth, note analysts at JM Financial Institutional Securities.

On the other hand, Harris’ proposed policies are more about maintaining the status quo, though she does intend to implement higher taxes on corporates and wealthy Americans, they note. 

A Trump victory could well accelerate a trade war with China. A Harris victory could well signal a status quo, but its not that the Democrats have done away with tariffs on Chinese imports. In fact, they have recently imposed 100 per cent tariffs on Chinese electric vehicles.

Investors, corporates, economists and policymakers back home in India will also be closely watching the contest as the road ahead will depend on who wins the US elections.

Take the banking space, for instance. A Democrat outcome implies status quo, that is the Fed will continue slash rates and expect RBI to cut interest rate given the recent slowdown. However, a Republican outcome could lead to a tighter interest rate regime in the US, and thus a stronger dollar, which could keep RBI on the back foot with respect to interest rate cuts, said the analysts at JM Financial. This could ensure interest rates in India do not come down in a hurry, they added.

IT services companies felt the heat in Trump's previous stint as president, as he tried to curb the H-1B visa programme. His policies led to increased H-1B rejection rates, higher H-1B/L-1 visa processing charges and wage inflation for H-1B resources. The JM financial analysts note similar policy stance can't be ruled out in a second term. 

"That said, India IT services players are more insulated now from such anti-immigration policies than they were in 2016. All players have ramped up local hiring in the US. Majority of their US employees are now not dependent on visa (local/green card holders)," they noted. Therefore, the impact this time around, whether it’s around margins due to cost increases or the companies ability to deliver services, will be limited. 

The impact on the pharmaceuticals and healthcare space could well be divergent, too. Democrats have increased the population pool eligible for subsidised health insurance as well as the size of subsidies under the Affordable Care Act. While, these enhanced subsidies are set to expire in 2025, a Harris administration would like to make them permanent and this could have a neutral-to-positive impact on the wider healthcare space. Many Republicans, though not yet forthcoming on the Affordable Care Act, have stated that the subsidies should expire, which could be a negative development for healthcare.

Furthermore, the Joe Biden administration had let Medicare directly negotiate prices of select prescription drugs, which comes into effect from 2026. Harris has mentioned she would like to accelerate the speed of negotiations, which could result in extended list of drugs up for negotiations, pointed the JM Financial analysts.

Post COVID-19, the ‘China plus one’ strategy started gaining traction as companies looked to diversify their supply chains. Should Trump win and tariffs on Chinese imports go up, this ‘China plus one’ could only accelerate and benefit Indian companies, especially those in the auto ancillary sector among others. 

"Higher tariffs on Chinese imports under Trump could result in higher competitiveness of Indian chemicals exporters. Hence, despite the imposition of 10-20 per cent tariffs on Indian imports, chemical exports from India could see a meaningful jump," said the analysts. 

Solar cell and module exporters from India also stand to gain should Trump win. The US imposed barriers on import of solar PV cells/ modules from China and export of solar modules to US from India grew from Rs 600 crore in financial year 2021 to Rs 10,500 crore in FY24. Further measures under Trump can benefit solar cell and module exporters, the analysts added.

Similarly, higher tariffs on Chinese wires and cables could give Indian companies and their exports a boost, pointed JM Financial.

Trump's policies in the past were pro-oil and gas. His victory could incentivise investments in the US shale assets. Separately, Trump's promise to end the Russia-Ukraine conflict and tensions in West Asia could "eliminate" the geopolitical risk premium from oil. All in all, a Trump victory could well usher in a bearish phase for oil prices.