Wednesday, November 16, 2016

India in the Trump era

by Harish Gupta, National Editor, Lokmat Group

From Republican presidential nominee of the United States of America, Donald Trump is already the President Elect, and is irreversibly marching towards his inauguration in January. The traumatised liberals are hoping against hope for some miracle at the last minute, like electors pledged to support Trump changing their mind in a fiery defiance of convention, if not the election law. But all that is a mark of the extreme numbness that has overtaken the minds of Americans who were hardly prepared to see the nightmarish figure of a part-crackpot part-bully storming into the White House and occupying it for four years, at least. 

While time may not always prove to be the best healer, and a divisive president is certain to leave his mark on America if not the world, it is still necessary to get clarity on what Trump's election actually signifies. It will surely be a repudiation of a central assumption about America's commitment to greater inclusiveness at home, and free trade and global leadership abroad. The unfathomable policy uncertainty that may be waiting to be unrolled in the Trump era can recoil on the world in myriad ways. It may witness an anti-democracy military grouping, or an ideology-less grouping against conceived enemies. It may be the funeral of multilateral trading. It may mark return to the high tariff walls of the Reagan era. Or in any other painful way in which you turn the clock backward. Still, the moot question is, can the tsunami also throw up opportunities for a bit player like India? Just as Nixon/Kissinger's overture to China to get it on the side of the US in 1971 did to the future of the latter? In the following year, after Richard Nixon, visited Beijing and met Mao Zedong, he termed the visit as "the week that changed the world". In the thick of the Cold War, what China could offer was an addition to the Soviet Union's worries. What lies in India's destiny depends on what it can offer. 

India can emerge on Trump's radar only if—and that's a big if—he sticks to his campaign promise to punish China for being "currency manipulator", beside looking for "new trade barriers against Chinese imports". China is only marginally dependent on imports from the US but it is America's largest source of import. US goods export to China in 2015 were $116 billion while China goods export to the US were $482 billion. Following the gradual deindustrialisation of Middle America—the reason why Democratic candidate Hillary Clinton got routed from the 'rust belt' states like Michigan—the US has now become totally dependent on China for top import category items like electrical machinery, machinery, furniture, sports items or footwear. 

Trump has threatened tariff up to 45 per cent on Chinese imports which, though still a threat, is within the realm of feasibility, For at least two more years, it will remain a Republican Congress; so the fabled checks and balances of the American democracy may not count. India can join the game if it can tap its potential of cheap labour and its deep knowledge base, particularly of its large public sector corporations, to fill in the vacuum that China may leave. It is obvious that the Chinese imports to America excludes products of high-tech American companies in mainland China, such as Apple. On the other hand, Chinese imports are moderately labour intensive, with labour costs playing a significant role in their competitiveness. But wages in China are rising fast. It is on this ground that China is losing its competitive edge in the US market. It is perhaps one of the reasons why the Barack Obama administration focused on the Trans Pacific Partnership of 11 countries including Vietnam and Malaysia. India can be a major player in the US market if it plays its cards well with the most unpredictable and disruptive administration the US Capitol has ever seen. 

Still more uncertain is the possible impact of Trump’s professed dislike of the H1B visa, and whether it can punch a big hole in the IT industry that earns $100 billion in exports. In this space, I have discussed the critical technology shifts that threaten the very business model India follows, which is that of locating trained workers in client premises and thus giving the client the advantage of cheap and available labour. The model is threatened by artificial intelligence and big data. Indian IT workers are of course a smart lot and it may not take them long to catch up with others on the use of artificial intelligence and, in a way, add value on robot. But an abrupt closure of visa programmes like H1B or L1 has the potential threat to trigger a reverse exodus of many thousands of Indian American workers, not to speak of a sudden break in the $10-billion annual pipeline of remittance from the US. 

In the strategic context, Trump’s pronounced distaste for persons of the Islamic faith, if translated into action, can create such a stirring in the Muslim world that it can bring the age-old US-Pakistan ties to a sudden end. Pakistani media have begun reflecting the existential fear of a country long used to diverting American weapons marked for use against terror groups, to attack India through its proxies. Nor can it rely indefinitely on China. America is still the biggest source of technological knowledge, and China, after having covered a long way from a peasant economy to the world’s number two, is still in need of US knowhow. Trump may review his opinion on China, but not if it keeps spilling nuclear technology to North Korea and Pakistan and arm the latter with copycatted versions of the F16 fighter jet with designs stolen by Chines spies at the plant of Lockheed Martin. It’s time for both China and Pakistan to behave.