Neither Rupee nor stock market to look very healthy after Trump comes to power: Swaminathan Aiyar

Swaminathan Aiyar, Consulting Editor, ET Now, says India faces challenging times ahead, similar to other countries. If trade tariffs are imposed, Europe and Japan may retaliate, and India should be cautious about responding aggressively to avoid provoking Trump. The dollar remains the safest option, leading to a shift from emerging markets to American treasuries. This trend could impact currency issues and foreign investments, potentially causing continued outflows from India and pressure on the stock market. As a result, both the rupee and the stock market may struggle once Trump takes office.

How do you think Trump's foreign policy could be and what could it spell for India in particular?
Swaminathan Aiyar: We are in for an exciting but rather uncomfortable time. Mr Trump has come in promising to change the world. He wants to tear up things like the traditional NATO relationship, the traditional NAFTA relationship, the whole WTO structure, the whole world climate agreement structure. He claims he wants to change things all over.

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For India, the biggest danger in this is that he will start a trade war. He has threatened to put tariffs of 10% on everybody, 60% on China. He has called India a trade king and says that look at India, it puts such high import duties on American bikes but we allowed it almost duty free. We are not going to allow this. So, India is in for an uncomfortable time but just like all other countries are going to be in for a very uncomfortable time, there is a danger that when he puts these trade tariffs, Europe will retaliate. Japan will retaliate. We will retaliate.

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I would just say that on our own part, let us not be very aggressive in retaliating, because in the mood of this guy, if you retaliate, he will retaliate even more. That is the kind of trade war we are fearing, and there will be an escalation and all that we can do is wait and watch and hope that the escalation is limited. It is not in our interest to go very far. Trump, after four years, will be replaced by somebody else. Maybe then we will return to a more normal world. But right now, we face a pretty tough prospect on trade. I am not an optimist at all that Trump will be held back.

How are you seeing his presidency in the context of global relations and climate change?
Swaminathan Aiyar: In foreign policy, he is an isolationist. He has no particular interest in pursuing wars. He says he wants to bring a ceasefire in Ukraine. I think our greatest concern is that China may come to the conclusion that it may never again have a president who is so reluctant to intervene in an invasion of Taiwan. So, this is a good time to invade Taiwan! I hope that does not happen. I think that would affect us adversely, because if China manages to attack Taiwan and takes it over, India's Arunachal Pradesh will be next on China's agenda.

So, it would be greatly against our interest to have any escalation in East Asia. We need to hope that Trump remains focused on East Asia and is not allowed to make any gains out there. If China does not make gains there, it is that much less likely to take on India as well.

On climate, Trump is a total climate sceptic. He had last time pulled China out of the climate conference. Biden put it back, but he once again will take it out. So, for the climate, just forget about trying to get to net zero quickly. With new technology being cheaper, we should adopt it anyway and go ahead but do not sit around sacrificing anything. Do not shut down your power plants quickly. We will need thermal power plants for quite some time. So, produce as much thermal power as you need, even as we go green and set up solar and wind power. I think these are the main lessons that we have to look out for in a Trump presidency.

Given the evolving geopolitical landscape, do you foresee an increasingly volatile neighbourhood around India in the near term and particularly under the Trump administration?
Swaminathan Aiyar: In the near term, in our neighbourhood, I do not expect much change. I do not think it will be going to impact our relations very much with Pakistan, Bangladesh, and Sri Lanka. I do not think anything will change very much there. US relations with Pakistan have already cooled and they will continue to be cooled. There is no sense in Trump seeing any great advantage in backing Pakistan in any strong way. The notion that it is the gateway to Afghanistan, is all gone. Taliban has taken over there. And Trump says that it will be a mistake to get into this kind of thing anyway.

So, in an immediate neighbourhood, I do not see chances of a disruption. The real problem is that his isolationism may encourage Chinese adventurism either in the South China Sea or in Taiwan.

I will just talk about the obvious, which is Trump and China and Trump's relationship with China. Everyone is assuming that there would be a big change in terms of how the China and America trade versus the political equation would change. What is your view? How do you see the Trump administration evolving and changing their equation with the Chinese government and with China as a trade partner?
Swaminathan Aiyar: It is possible that we will gain something from the trade war between the USA and China, which is already taking place and this will not be a new development. Already, there have been huge tariffs put in place to prevent Chinese imports of renewable energy and it is still not clear whether the Chinese will be allowed to export any electric cars to the USA. Trump will doubtless double down on those particular efforts. There is a theory that this will induce foreign investors to diversify out of China, create a China plus one policy that instead of just investing in China, they will also invest in other countries and India can get a slice of that shift.

I am afraid we have been hoping for this already for the last five years and very little of that China plus one stuff has actually come to India. A lot of it has gone to Vietnam, Laos, Mexico, and various other countries. Very little to us because our overall attitude to foreign investment is not particularly good. People do not believe that this is a government that welcomes foreign investment. People are afraid that India will back local champions against anybody who comes in.

Secondly, we are not allowing Chinese investment. We have not allowed the various Chinese companies that want to come in and invest in electric vehicles and solar and batteries, to come in and invest here. So, if you do not allow Chinese companies to come in as well, then the idea of people diversifying out of China, is getting limited because you are unable to create a supply chain. We need to liberalise these things and look more favourably and not keep backing our national champions against foreign investment. If you do that, then you can get some more benefits from China plus one strategy as the trade war with China escalates.

Will the controversy over the H-1B visas to Indian tech workers settle down in the near future because there has been a lot of news flow and uncertainty regarding this as well?
Swaminathan Aiyar: Without doubt, Trump has been against getting the H-1B visas, but it is not just him, others have also tried to do this. But the remarkable thing is the effect of trying to keep Indians out on H-1B has been that more and more of that IT work has simply been offshored directly to India. So, instead of Indians going to America for that work, the work from America has come to India to the point where on a particular project, there was a time in 2000 when 70% of an IT jobs in America, 70% would be done onshore in America and 30% here. Today up to 90% will be done in India and only 10% there.

In other words, the attempt to prevent Indians from going there has backfired. The result has not been that more and more work is done in America, but that more and more work is directly offshored to India. We have been a gainer. So, I would say, we should stop worrying about the H-1B visa problem. Yes, it does have a negative effect. But today the result has been that offshoring has come on such a large scale that we now have global capability centres (GCCs). Hundreds of multinationals have now shifted to India. They are doing not just IT work, but upscale work, artificial intelligence work, cloud work, R&D. It is all now being done in India. This is one reason why our services exports in November for the first time have become larger than our merchandise exports.

Can the Trump regime or can Donald Trump make the impossible look easy, which is a truce between Russia and Ukraine? Can he really kickstart or accelerate this ceasefire?
Swaminathan Aiyar: It is not possible for Mr Trump to force Ukraine to accept a ceasefire. In the worst case scenario, if he says, I am not going to supply any more arms, even then it does not, result in an automatic end to the war because the Europeans are very keen on continuing support to Zelensky as long as he wants to fight.

Now, back-channel talks have taken place on a ceasefire. They have taken place on the idea that if you have approximately along the current ceasefire line, then Russia may be able to keep the slice – about a quarter of Ukraine – that it has taken over. Possibly at some point of time, without ending the war formally, there may be a ceasefire, and the ceasefire may be violated and things may remain uncertain, but the chances of a ceasefire are higher.

At the end of it, both sides can declare victory. Ukraine can say that Russia wanted to take over the whole country and we have stopped it more or less at Dnieper River and Russia, on the other hand, can say, look, the whole world tried to stop us and they could not stop us from taking over the slice of territory. You can rephrase what your original aims were.

So, it is possible. This was talked about even before Trump won the election and it will be talked about even more now because of certain exhaustion. But do not count on a very quick end. I think the Europeans will declare that even if Trump is not helping, we will continue to help Zelensky as long as he wants to fight. If he himself is okay with a ceasefire, that will happen.

There has been a lot happening within the currency market and the Indian rupee has touched an all-time low recently. Now, with fears of uncertainty over the trade tariffs and global geopolitics, do you see the rupee and the other emerging market currencies remaining under pressure after Trump becomes president or there could be some respite?
Swaminathan Aiyar: That is absolutely the case. The capital continues to say, let us go. There are so many uncertainties. Let us seek a safe haven. The safest haven is the dollar and the riskiest areas are the emerging markets. So, some movement from the emerging markets to American treasuries is inevitable. What you are seeing is just the start. It is not going to stop and that applies as much to the currency problem as it is to foreign portfolio investment.

Foreign portfolio investment, too, could keep selling in India and forcing the stock market down. So, I would say neither the rupee nor the stock market is going to look very healthy after Mr Trump comes to power.