How Trump’s ‘America First’ policy opens doors for India’s regional power

Trump’s return presents a fresh start for US-India relations. Unlike his predecessor’s critical stance on India’s internal affairs, Trump’s approach is predicted to be more practical. He will, possibly, prioritize mutual benefits and cooperation over ideological disagreements—in other words, prioritizing shared goals and practical benefits over differing political beliefs or systems—potentially leading to a stronger, more transactional partnership.

Trump’s Focus on Home, India Gains

Trump’s focus on ‘America First’ and domestic issues could make the US more isolated from other countries. Because he prioritizes American interests above all else and wants to focus on problems at home, this may mean less involvement in international affairs and weaker relationships with other nations. In simpler terms, he may pull the US away from global partnerships to concentrate on its own concerns.

This may give India the space it needs to be more influential in South Asia and the Indo-Pacific region.  The situation, while seemingly negative, could unexpectedly create opportunities for India to increase its power and importance in these areas.

Challenges with Trump Trade Policy

As the US reduces its involvement, India may have more freedom to act. This could mean taking stronger steps against China’s growing power and working to create more stability in its surrounding countries.

The Biden Administration’s actions made the Indian government suspicious. Accusations of human rights violations, including concerns about the treatment of religious minorities, restrictions on freedom of speech, the situation in Kashmir and the treatment of Dalits and Adivasis, and claims of US meddling in Indian politics—particularly the idea that the US supported NGOs to influence Indian affairs—led to concerns that the US was trying to limit Prime Minister Modi’s power.

Strained relations between the US and India worsened further because the Biden Administration openly backed a military takeover in Bangladesh and resumed military aid to Pakistan. This caused further distrust between the two countries. If Trump wants to improve relations with India, he needs to see India as more than just a way to balance China’s power.  He needs to recognize India’s own importance and interests.

According to First Post, Trump’s America is not trying to control every part of the world. This means the Quad—a group of countries including the US, India, Japan and Australia—will, possibly, become stronger. They may even start planning to work together militarily, showing their shared worries about China are more important than individual actions.

With Trump in office, the US State Department’s negative views on India are expected to lessen. This should lead to a less critical relationship, focusing instead on increased cooperation in important areas, such as space and defence. If Trump is re-elected, he will, possibly, continue his tough trade policies. This could cause problems for India because of a possible 10% tax on all Indian imports to the US. India needs to decide whether to retaliate or try to negotiate a deal to avoid the tax.

India Benefits Amid China-Linked Shifts

Trump might keep interest rates high for a longer time. This could make it harder for foreign companies to invest in India’s stock market. However, companies looking to move away from China may choose India instead, creating new opportunities for India’s economy.

i) Higher US Interest Rates: When the US Federal Reserve raises interest rates, it makes US investments more attractive to foreign investors. This is because higher rates generally mean higher returns on investments, such as US Treasury bonds. This increased attractiveness can draw investment away from other countries, including India. Foreign investors may shift their money to the US to take advantage of the higher returns, reducing investment in Indian financial markets.

ii) Impact on FPI in India: Foreign portfolio investment (FPI) refers to investments in stocks and bonds. If higher US interest rates draw investments away from India, it could lead to a decrease in FPI in India’s financial markets. This could negatively impact the Indian stock market and the availability of capital for Indian businesses.

iii) ‘China Plus One’ Strategy: Many multinational companies have significant operations in China. However, there are increasing risks associated with doing business in China, including geopolitical tensions, trade disputes and regulatory uncertainty. Companies are, therefore, looking to diversify their manufacturing and supply chains, adopting a ‘China Plus One’ strategy. This means establishing production facilities or sourcing materials from a country besides China to mitigate these risks.

iv) India as a Beneficiary: India is well-positioned to benefit from this ‘China Plus One’ strategy. It offers a large and growing market, a skilled workforce and improving infrastructure. Companies seeking to reduce their reliance on China may choose to invest in India, setting up factories or outsourcing work. This would boost India’s economy and create jobs.

In short, while higher US interest rates could negatively impact foreign investment in India, the potential of companies to shift operations away from China presents a counter-balancing opportunity. The net effect on India’s economy would depend on which of these forces is stronger.

Seizing Opportunities: India’s Global Leadership

As Trump reshapes his ‘America First’ policy in Asia, New Delhi may question if ‘Make America Great Again’ (MAGA) could turn into a ‘Make India and America Great Again’ (MIAGA) approach. This shift raises the possibility of aligning US interests with India’s goals, potentially benefiting both nations.

The chance for India to step up is there, but it will demand some difficult decisions. India may need to adjust its strategies and take on a larger military role internationally. It could also mean opening up parts of its market to US businesses. With Trump in charge, this partnership will, possibly, be more balanced and less one-sided.

(The author of this article is a Defence, Aerospace & Political Analyst based in Bengaluru. He is also Director of ADD Engineering Components, India, Pvt. Ltd, a subsidiary of ADD Engineering GmbH, Germany. You can reach him at: girishlinganna@gmail.com)

(Disclaimer: The views expressed above are the author's own and do not reflect those of DNA)