Donald Trump is back, and with him comes a storm of policies set to redefine global economics—again. After a landslide victory, Trump has returned to the White House as the 47th President of the United States. However, his presidency begins on an unprecedented note: Trump holds the dubious distinction of being the first American president to take office as a convicted felon. Despite his convictions, the man has emerged unscathed, thanks to a judge who deemed unconditional discharge as sufficient punishment.
For a president so polarizing, it’s no surprise that his supporters are willing to overlook his legal troubles. What’s truly intriguing, however, is the widespread popularity of his policies. With an approval rating surpassing his voter base, Trump’s agenda has captivated millions who subscribe to his protectionist rhetoric. But for countries like India, the ripple effects of Trump’s “America First” strategy may feel less like ripples and more like tsunamis.
The Art of the Deal: Alienating the World
In Trump 2.0, the President has doubled down on policies aimed at curbing immigration and squeezing foreign producers out of the American market. Tougher measures on illegal immigration, stricter restrictions on H1B visa holders, and an expansion of his high-tariff crusade are the hallmarks of his economic strategy. If Trump’s first term (2016–2020) was tough on global trade, his second act promises to be even harsher.
The man who coined the phrase “Make America Great Again” seems intent on making America isolated again. His supporters embrace this narrative, convinced that foreign producers are draining the American job market. Trump’s proposed “External Revenue Service” aims to penalize “grubby foreigners” who, according to him, exploit free-market access. Meanwhile, the rest of the world—India included—braces for the impact.
India’s Big Headache: When China Dumps, India Suffers
One of the most immediate threats to India is Trump’s aggressive stance against China. By imposing higher tariffs on Chinese goods, Trump may push Beijing to offload its surplus to other countries, including India. China’s economic slowdown has already led to overcapacity, and its focus on undercutting competitors could flood Indian markets with cheap goods. From steel and non-ferrous metals to consumer electronics, these products threaten to undermine Indian industries already struggling with competition and a massive $100 billion trade deficit with China.
The timing couldn’t be worse. India’s efforts to reduce dependency on Chinese imports have made little progress, and the dumping threat could exacerbate domestic industry woes.
Crude Realities: The Russian Oil Conundrum
Another potential blow comes from Trump’s stance on sanctions. He has hinted at tighter restrictions on countries buying discounted Russian crude oil, a move that could directly impact India’s energy imports. Over the past year, India has benefited immensely from discounted Russian oil, refining it into petrol and diesel for export to the U.S. and Europe. Stricter sanctions could jeopardize this lucrative trade.
Compounding the issue is a strong dollar, fueled by Trump’s economic nationalism, which has weakened the rupee. This makes imports costlier, foreign debt harder to manage, and foreign investors jittery. As a result, foreign institutional investors (FIIs) pulled out nearly ₹47,000 crore in January alone, causing a stock market plunge and pushing the rupee to a precarious 87 against the dollar.
RBI’s Balancing Act: Between a Rock and a Hard Place
The Reserve Bank of India (RBI) is caught in a vicious cycle. As the rupee weakens, the RBI has been selling dollars to stabilize the currency, depleting its foreign exchange reserves in the process. Since September 2024, the central bank is estimated to have sold $40 billion to prop up the rupee.
This intervention has created a liquidity crunch in the banking system, with the RBI reporting a ₹2.5 trillion liquidity deficit by December’s end. Higher interest rates and sluggish consumer spending have compounded the economic strain. While sectors like housing and real estate demand lower policy rates, inflation continues to erode household budgets, leaving little room for optimism.
GDP Growth: From Sprint to Stumble
India’s GDP growth has already slowed to 6.4% this year, down from 8.2% last year. The forecast for the next fiscal year isn’t much brighter, with predictions hovering around 6.5%. The combination of high interest rates, sluggish wage growth, and muted consumer spending paints a bleak picture for an economy in need of revival.
The government’s hands are tied, with fiscal constraints preventing a spending spree to boost growth. Private investment remains lackluster, hindered by low consumer confidence and weak demand. While the software export industry has been a rare bright spot, Trump’s potential curtailment of H1B visas could dim its prospects.
The Psychology of Protectionism
For all his flaws, Trump’s ability to rally support for protectionist policies underscores the power of perception. His supporters genuinely believe in the rhetoric of foreign exploitation and domestic victimhood, a narrative that resonates deeply in economically uncertain times. Unfortunately, this protectionism risks isolating America from global trade while destabilizing economies worldwide.
India, already grappling with its own set of challenges, now faces a double whammy: the “Trump Effect” and domestic economic constraints. The uncertainty surrounding Trump’s second term adds to the anxiety. Will he push for a ceasefire in Ukraine and play the peacemaker, or will he double down on his mercantilist agenda? For now, the latter seems more likely, leaving countries like India bracing for a bumpy ride.
The Bottom Line: A Bumpy Road Ahead
It would be unfair to attribute all of India’s economic troubles to Trump’s policies. Many challenges—such as fiscal constraints, sluggish wage growth, and inflation—are homegrown. However, Trump’s second term has the potential to aggravate these issues. From Chinese tariffs to H1B restrictions, his policies are shaping up to be an economic headwind India cannot ignore.
As Trump 2.0 unfolds, the global economy watches with bated breath. Will he live up to his reputation as the disruptor-in-chief, or will he surprise us all with a turn toward diplomacy and cooperation? One thing is certain: the road ahead is as unpredictable as the man himself.
