Could Trump's Return Shift the Trade War Dynamics with China?

As Donald Trump prepares for his second term following the 2024 U.S. presidential election, the dynamics of U.S.-India relations are poised for significant change, particularly in the context of its relationship with China. Mukesh Aghi, president of the US-India Strategic and Partnership Forum (USISPF), has suggested that Trump's return could inadvertently strengthen ties between India and China. His proposed tariffs of 60% on Chinese goods and 20% on other imports may compel China to seek a de-escalation of tensions with India, especially in light of recent agreements on border patrolling and increased visas for Chinese nationals traveling to India. [259b878a]

In a related development, China is actively trying to improve its relations with India to mitigate the pressure expected from the incoming Trump administration. Aghi noted that the Trump administration's impact is prompting China to ease its dealings with India, with agreements on border patrolling and direct flights already reached. This move is seen as essential for China as it prepares for the potential economic ramifications of Trump's policies, which could significantly affect its trade landscape. [a4c3ac93]

Interestingly, recent sentiments among the Chinese public and business community indicate a surprising favor towards Trump. Despite his previous negative comments about China, social media platforms in China are filled with admiration for him. This admiration stems from the belief that Trump's policies inadvertently spurred domestic innovation within China, as companies sought workarounds to his tariffs. Xi Jinping has also expressed a readiness to work with Trump, suggesting that his unpredictable nature might lead to softened U.S. economic policies towards China. Chris Pereira, founder of iMpact, emphasizes the potential for improved U.S.-China relations under Trump's leadership. [753ea2b5]

Indian Foreign Minister Subrahmanyam Jaishankar has expressed optimism about navigating the complexities of Trump's foreign policy, indicating that India is ready to bolster its ties with the U.S. under his administration. Trump's cabinet nominees, including Marco Rubio for Secretary of State and Mike Waltz for National Security Adviser, are seen as advocates for enhancing U.S.-India relations, with Rubio's introduction of the U.S.-India Defence Cooperation Act in July 2024 highlighting a legislative commitment to deeper military collaboration. [541f3d0a]

In 2023, India recorded a trade surplus of over $35 billion with the U.S., contrasting sharply with China's trade deficit of $279 billion. This economic advantage positions India favorably in the eyes of the Trump administration, which analysts believe may shift its focus from human rights issues to strategic partnerships, particularly in defense and intelligence. [541f3d0a]

The potential for increased intelligence cooperation and arms deals with India is likely to be a priority for Trump's second term. However, concerns linger about the fragility of U.S.-India relations, stemming from past trade tensions and differing perspectives on global issues such as Russia and Ukraine. [541f3d0a]

C. Raja Mohan highlights that Trump's approach to foreign policy will likely emphasize bilateralism and transactional deals, moving away from traditional globalist ideologies. This shift allows Trump to pursue a foreign policy that resonates with his supporters who favor an 'America First' agenda. [efb56f05]

As India prepares for these changes, the implications for its economic landscape are significant. A recent analysis by Evrim Ağacı indicates that Trump's previous policies favored American businesses, which could present challenges for India's economic growth. The State Bank of India (SBI) has noted that shifts in U.S. trade policies may alter foreign direct investment (FDI) trends, impacting key sectors of the Indian economy. [2ea9fef0]

During Trump's earlier presidency, trade relations were marked by increased tariffs and regulatory changes that affected Indian exports, particularly in textiles, which account for a substantial portion of India's exports to the U.S. Rakesh Mehra, Chairman of the Confederation of Indian Textile Industry, has emphasized the importance of U.S.-India collaborations to navigate these challenges. [2ea9fef0]

Mark Mobius, a prominent investor, believes that Trump recognizes India's significance in his economic agenda, especially given its robust growth under Prime Minister Narendra Modi. Mobius has suggested that U.S.-India trade negotiations could lead to beneficial agreements, particularly as Trump seeks to counterbalance China's influence in the region. [baa79d15] [9aaab5d3]

However, a report from BW Businessworld warns that Trump’s presidency may introduce heightened tariffs and restrictions on outsourcing, which could adversely affect sectors like automobiles and pharmaceuticals in India. The report also highlights the potential for tariffs related to intellectual property rights and labor standards, complicating the trade relationship further. [cf1de91b]

UBS Securities has projected that India's GDP growth for FY25 will be around 6.8%, slightly lower than the Reserve Bank of India's estimate. This comes amid concerns over potential U.S. tariffs on Chinese imports, which could create trade uncertainties. [454f3af6]

In this evolving landscape, the RBI is expected to ease rates by 75 basis points in early 2025, as inflation reached a 14-month high. Economic activity in India has softened, with central government capital expenditure spending declining in the first half of FY25. [454f3af6]

Walter Russell Mead, a prominent analyst, has stated that Trump is likely to support the bilateral relationship with India and the Quad amid ongoing tensions with China. Mead noted that India performed well during Trump's previous term and emphasized the need for an 'Indian voice' in establishing a technology alliance among India, Israel, the U.S., and Europe. [409cbb9c]