Trump, Trade and India

Focus: GLOBAL

Yiannis Mostrous Image Yiannis Mostrous Editor, The Capitalist Times

At this point, 2017 is shaping to be the year where getting the micro call correct will be more important than getting the macro one right, cautions Yiannis Mostrous, global expert and editor of Capitalist Times.

The current uncertainty in economic and trade policy is higher than at any other time in recent memory. Likewise, the world’s political picture is becoming increasingly unpredictable.

The main reason for this uncertainty is the election of Donald Trump; the president’s agenda, on the economic front, aims to change the rules of the game regarding how the US and, consequently, the global economies operate.

It may be early for details, but the president and Republican-controlled Congress have been explicit enough noting that a much needed tax reform is the first priority. The centerpiece of this reform is what has been termed “border tax adjustability”.

Don’t let the wonky phrasing distract you from the changes it will bring to global trade. Although the issue is complicated, the main idea is: no taxing of revenues from exports and no deductions for the cost of imports.

When it comes to India, the country’s information technology (IT) and pharmaceutical companies are likely to experience the lost the most. Remember that the term “imports” includes services.

As a result, Indian IT companies that incur most of their costs from overseas will face higher taxes and, therefore, substantially lower profits. And that’s even if they increase prices.

However, the Indian government is moving ahead with its domestic reforms that will benefit the economy. With political and policy developments in full swing, India’s economy will gradually return to recovery later in the year.

By 2018, it should be firing on all cylinders.