Big News for the week ending 20th Jan 2017

Trump era begins

It may not really be as bad as it is being made out…

After a surprising, yet resounding victory, at the US presidential polls, Donald Trump took charge as the 45th President of the US on 20th January. Not surprisingly, his initial statements were laced with nationalism and isolationism. He spoke of coming down heavily on China, placing a check on outsourcing and rethinking trade ties and global power equations. The bad news is that many of his actions could have negative repercussions for the world economy. The good news is that there is only so much damage that Trump can actually do to the world economy…

What Trump will do?

Trump is likely to come down on illegal immigrants. Out of the 40 million illegal immigrants in the US nearly 10% are from India but a vast majority is those who walk across the porous orders to the South of the US. While a wall along the Mexican border may not be really feasible, tighter border controls are highly likely. One can also expect that the ease with which Indian IT companies could get H1-B visas is unlikely to sustain. This could have serious implications for the Indian IT industry. Trump is also likely to come down heavily on the pricing policies of pharma companies, India included. Above all, Trump will surely make it harder for China to run a perpetual trade surplus with the US without extracting some form of compensation from China. That will be interesting!

What Trump will not do?

Notwithstanding his resounding victory and the absolute majority of the Republican Party in both houses, Trump is unlikely to go the whole hog in most cases. For example his threat of 45% duties on Chinese products is unlikely to find much favor from the US business community which has been Trump’s stronghold. Also, the US is too dependent on Chinese imports and that cannot be

replaced overnight. Secondly, the border tax on outsourcing will be easier said than done. For the last 40 years, US companies have been thriving on this cost arbitrage with China and Latin America in manufacturing and with India in services. These economics cannot be modified overnight. So while there will be a lot of grandstanding on issues, do not expect any major changes in the status quo.

Where there will be change…

One area there will be change is in the area of diplomatic relations. For starters, the cold war between the US and Russia may finally be put on the backburner. The US may be increasingly disinclined to embroil itself in exercises like Afghanistan in 2001 and Iraq in 2003. Thirdly, the US may not be too keen to engage along with NATO in European conflicts, as in the past. These initiatives may be economically beneficial for the US. But the worries over the Trump era may be largely overstated!

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