President-elect Donald Trump’s acceptance speech on November 9 began with a pledge that he would be the president for all Americans. After a bitterly fought campaign, he said Americans needed to work together for a great economic plan, for national growth and renewal, and to rebuild highways, bridges, tunnels, airports, schools and hospitals. Trump also implicitly referred to working with consensus, saying, “we will seek common ground, not hostility; partnership, not conflict”.
It was truly the speech of a statesman. You can ascribe some of his early statements to campaign rhetoric. But some opponents of Trump have refused to accept the vision of his acceptance speech. Some still believe that the Trump administration will quash ideological opponents and unleash policies that may undo the achievements of the past liberal era. Their fear is strengthened by the fact that Republicans now control both the houses of legislature, and Trump may appoint judges who subscribe to his preferred ideology. Only time will tell whether this apprehension is unfounded or not. Many leaders have been known to change once they take office, and Trump is no exception. Besides, the American system and its institutions ensure that presidential powers cannot be absolute.
What is however clear is that Trump’s administration will be different from the previous ones, even the Republican presidencies. One of the earliest indications was his call with the Taiwan president. It was not just an accidental event, but was apparently well-planned. This has no precedent. America has followed a “One China” policy and hence officially deals with Beijing, even though there are economic linkages with Taiwan. But Trump now says he is not sure why the US should follow the policy.
The wider US-China relationship has many diplomatic, strategic and military thorns, even though the two countries are tightly embraced in an economic relationship. China’s tremendous growth has been partly possible because of access to US markets for its exports, and US investments into manufacturing capacity in China. Yet, every year, even on trade, there have been awkward moments. US policy makers and industry have accused China of keeping their currency artificially undervalued, giving an unfair advantage to their exports. But lawmakers routinely fail to formally label China as a “currency manipulator”. For its part, China too knows when to move back from the brink, and indeed its currency started getting stronger since 2005. All that may change now, as China faces a sharp slowdown. Into this complex milieu, Trump’s China policy is going to be a big departure, it seems. There are some other clear indications that the Trump era will be different.
First is his fiscal policy. Trump is going to increase infrastructure spending. It is crumbling, and needs repair, resources for which can only come from the Federal government. As if in anticipation, the bond market is already signalling much higher deficits into the future. Yields on government bonds are rising. The deficit will be further affected adversely due to lowering of taxes, which Trump has promised. Trump will also be willing to give tax amnesty to American companies who will bring back their profits that are parked abroad in tax havens.
Since US interest rates are rising, it leaves less space for the RBI to lower its own rates. Higher US rates are also making the US dollar very strong, as capital moves “uphill” back from developing countries to the US. Last year, almost one trillion dollars have flown out of China alone.
The second: “Make in America” and protectionism. Trump will aggressively pursue a policy to retain jobs and manufacturing capacity in America. He has already warned Toyota that if it produced cars in Mexico for sale in the US, he would impose a border tax. More than 1.4 million Japanese made cars produced in Mexico are sold in the US. Trump also indicated that he would be willing to renegotiate the North American Free Trade Agreement and impose stiff import duties on cars made outside the US. He is even taking a “strategic deviation” from internationally agreed treaties. The Trans Pacific Partnership (TPP) Agreement pushed strongly by the Obama administration is all but dead under a Trump regime.
This might be a boon to India, as it gets a breather in its quest “not to be left out” of regional blocs, of which TPP was an example. Trump’s policies may also affect India’s Information Technology exports, if H1-B visas are restricted, or more burdensome requirements are imposed on local recruitment within the US.
The third big area is of US-Russia relations. There are many indications that while Trump is willing to needle China, he is warming up to improving relations with Russia. It’s not just a personal chemistry with President Putin but perhaps a desire to reduce America’s military expenditure in Europe that is motivating Trump. This is a big change in US foreign policy. It will also affect geopolitics of the Middle East, and developments in Syria and Turkey. Remember that Russia is not a member of OPEC but has a significant impact on oil and gas markets. Given India’s proximity with Russia, the US warming up to the latter can perhaps provide collateral benefits to India.
There are several other areas where a Trump administration is likely to deviate substantially from preceding policies. Some of these include retraction from climate change treaties, tighter anti-immigration policies, tougher anti-terrorism and surveillance measures, promoting American exports, attempting to cap dollar strength and impacting the independence of the Federal Reserve Bank.