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The US Elections and Its Implications for India

The US Elections and Its Implications for India
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The US election system is complex and yet captivating. While the heated ridiculous debate and exchange of accusation make it difficult to anticipate the outcome, it is interesting to watch. While the US accounts for only 5% of the world population, it generates 20% of the world income, underlining the economic implications of this election. 

We expect the Indian and Global stock markets to remain sideways till this election overhang is there. Once the election event is gone, global investors will start looking at fundamentals of Asian companies once again. So markets may move up after elections no matter the outcome. However talking about stock market in isolation, will not be prudent. It makes more sense to look at the ‘economics’ of this election.

Dependence of India on the US: For the FY 2019-20, the bilateral trade between the US and India stood at an astounding $88.75 billion, positioning the US as India’s top trading partner. 

So, how does the US elections influence the Indian economy? The answer lies in the policy and stance the candidates have expressed. Their views are very contrasting, making this election, in particular, all the more significant. 

Joe Biden has, on multiple occasions, expressed a soft stance on trade with China. In an interview, he hinted at ending the tariffs that Trump had imposed on Chinese imports. So, if Biden is elected, some of the economic gains that the Indian markets are expecting, might not be there.

However, as per predictions by experts, Biden will be under pressure to deliver on US economy front, and any policy announcement that will ultimately support manufacturing in China, will be heavily criticized. So, while his stance could be diluted, it will remain in the same direction. Also India holds a significant place in any South East Asia strategic policy framing, more particularly after the aggressive and bold stand of India to the recent border skirmishes with China. This consideration is very difficult for US to ignore as US has long term significant stake in this region.

On the other hand, Mr Trump is too vocal against China by calling the Coronavirus as the ‘Wuhan Virus’ or the ‘Chinese Virus’. The unyielding stance he has taken against China, to circumvent the disadvantages faced by US manufacturers could be seen as a gimmick in the run-up to the elections. However the tariff imposed on imports worth $370 billion could be seen as words in actions. Also the move to curb Chinese investments in US companies, the stringent ban on Huawei, restrictions on intellectual exports, and the latest TikTok ban, poses as a lucrative opportunity before other developing countries like India as their products becomes more competitive. 

Also, from what we understand, Mr Trump shares a good bonding with Mr Modi. If Mr Trump were to win this November, he and Modi will have an opportunity to work together for the next four years without any political contingencies. 

On the flip side, the Democratic Party vice presidential candidate, Kamla Harris, has been very vocal against the Indian Government on the Kashmir Issue. While she could have nipped it in the bud stating it as an internal conflict, she chose to condemn the matter stating it as a ‘human right abuse inflicted by India’. 

Under the current Trump administration, India seems to have vocal support on many issues, if not vocal, it’s indirect silent support. Be it on Kashmir, China-India border tussle, trade, or anything whatsoever. 

Also, Mr Trump has often ridiculed Pakistan and has shown them their true worth, while the Democratic party has always been very soft against Pakistan and Terrorism. 

Even though this does not translate to direct economic benefits, personal chemistry can affect trade relations particularly so when we are negotiating a trade deal with US.

To summarize, there are three possible outcomes for this election and Indian stock markets will rejoice in all the three scenarios — a Biden and Democrat win, divided Congress and a status quo Trump victory.

Nevertheless, Mr Trump coming to power might be music to the ears of Indian Stock markets as it will be great news for the Indian manufacturing industry in the short term. Any tangible gains depend critically on the ability to scale the manufacturing sector and the overall infrastructure, which India seems to be on the backfoot with in comparison to China.

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The US Elections and Its Implications for India
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