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Frontpage Insights: New trade policies during Trump 2.0 may adversely affect the global economic environment

  • India has to be prepared to face global uncertainty during Trump's tenure

After Trump's victory in the US election, what effect can be seen on the global economy and market of Trump's policy? We are aware of a proposal and its impact on the US fiscal deficit, but will the overall impact be limited. Do multiple economic factors affect policy?

The US economy has remained resilient despite the Fed's rate hikes, and recently released data shows the resilience of the economy there. There was also a change in the GDP figures last year. However, the fiscal deficit is 6.4% of GDP (this is the case when the economy is performing well) and it may remain around 7% even after 10 years.

Trump's proposed plans will also increase the fiscal deficit to around 10% instead of 7% over the next 10 years. A major contributor to that is the 2017 JOBS Act and tax cuts that have been in place since he was president. These include lower levels of personal income, estate and gift taxes and the provision of deductions on certain investments by companies. If extended to the end of 2025, it would add another $5.3 trillion to the fiscal deficit over the next 10 years alone. Although some measures may increase savings, government spending may also decrease, said Sreejith Balasubramaniam, economist and vice president of fixed income at Bandhan AMC.

The economic context today is quite different from when Trump was president from 2017-2020. Growth in the US has been resilient but the economy cannot escape the effects of interest rates at record highs despite recent rate cuts by the Fed. Credit card and auto loan crimes are on the rise. Declining immigration and high-cost corporate refinancing may also have an impact.

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Europe is also facing challenges such as high inflation, tight monetary policy and high fiscal deficit and growth is also weak. There are also speculations about a quick rate cut by the European Central Bank. China's real estate sector is also sluggish and consumer demand has weakened.

Global macroeconomic data will also prove important Earlier even when Trump was President, the impact on India was moderate. The reason for this was the refusal to exclude India from the list of countries for higher tariffs on imports of steel and aluminium. This time, if US oil production increases, it may benefit oil prices and challenges from China+1 but it will depend on our policy and capacity. Hence, we have to be prepared for uncertainty, however, global macroeconomic data will also prove to be important.

If Trump eliminates tax credits on EVs, that could affect sales US President-elect Donald Trump has said he will end tax credits on electric vehicles after taking office. However, the auto industry is in no mood to back down on its plans for EVs. The industry has invested heavily in EVs. According to figures from the Center for Auto Research, the industry has so far spent around Rs 16,000 crore on planning, designing and manufacturing EVs.

Earlier during the election campaign, Trump had criticized the federal tax of up to Rs 6.32 lakh to give concessions to EV buyers. He called it a green scam. It also said that the tax would destroy the auto industry. Trump's team is reportedly working on plans to eliminate tax credits and roll back strict fuel-economy regulations implemented by the Biden administration. However, it is unclear whether the Trump administration will actually eliminate the tax credit.

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EVs will sell in America, but will happen in China, a losing deal: Trump Trump's reasoning is that EVs are growing in popularity in America, but the majority of EV manufacturing will take place in China. That will raise the price for American consumers buying the car. He said he would use the money left over from the repealed tax credit to build roads, bridges and dams. Jonathan Sheriff, an executive at Midway Ford in Miami, said he thinks eliminating the tax credit will hurt EV sales. With the tax credit, the price of an EV is equal to that of a petrol car.

Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).

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