The US election system is complex and yet captivating. While heated debates and exchange of accusations make it difficult to anticipate the outcome, it is interesting to watch.
While the US accounts for only 5 per cent of the world population, it generates 20 per cent of the world income, underlining the economic implications of this election. We expect the Indian and global stock markets to trade sideways till this election overhang gets over. Once the election event is gone, global investors will start looking at fundamentals of Asian companies once again. So, markets may move up after elections no matter what the outcome is.
However, it will not be prudent to talk about stock markets in isolation. It makes more sense to look at the ‘economics’ of the election.
India’s dependence on the US: For FY2019-20, bilateral trade between the US and India stood at an astounding $88.75 billion, positioning the US as India’s top trading partner. So, how does US elections influence the Indian economy? The answer lies in the policy and stance the candidates have propounded. Their views are very contrasting, making this election, in particular, all the more significant.
Joe Biden has, on multiple occasions, expressed a soft stance on trade with China. In an interview, he hinted at ending the tariffs that Trump had imposed on Chinese imports. So, if Biden is elected, some of the economic gains that the Indian markets are expecting, might not be there.
However, as per predictions by experts, Biden will be under pressure to deliver on the economy front, and any policy announcement that will ultimately support manufacturing in China will be heavily criticised. So, while his stance could be diluted, it will most likely remain in the same direction.
Also, India holds a significant place in any Southeast Asia strategic policy framing, more particularly after the aggressive and bold stand India took during the recent border skirmishes with China. This consideration is very difficult for the US to ignore, as it has significant long-term stake in this region.
On the other hand, Mr Trump is very vocal against China and calls Coronavirus as the ‘Wuhan Virus’ or the ‘Chinese Virus’. The unyielding stance he has taken against China to circumvent the disadvantages faced by the US manufacturers could be seen as a gimmick in the runup to the elections. However, the tariff imposed on imports worth $370 billion could be seen as words in actions. Also, the move to curb Chinese investments in US companies, the stringent ban on Huawei, restrictions on intellectual exports, and the latest ban on TikTok create lucrative opportunities before other developing countries like India and their products becomes more competitive.
From what we understand, Mr Trump shares a good bonding with Mr Modi. If he were to win this November, he and Modi will have an opportunity to work together for the next four years without any political contingencies.
On the flip side, the Democratic Party vice-presidential candidate, Kamla Harris, has been very vocal against the Indian government on the Kashmir Issue. While she could have nipped it in the bud stating it as an internal conflict, she chose to condemn the matter stating it as a ‘human right abuse inflicted by India’.
Under the current Trump administration, India seems to have US support on many issues, if not vocal, it’s indirect silent support. Be it on Kashmir, China-India border tussle, trade or anything whatsoever.
Also, Mr Trump has often ridiculed Pakistan and has shown them their true worth, while the Democratic Party has always been very soft on Pakistan and its terrorism.
Even though this does not translate into direct economic benefits, personal chemistry can affect trade relations, particularly so when we are negotiating a trade deal with the US.
To summarise, there are three possible outcomes for this election and Indian stock market will rejoice in all three scenarios — a Biden and Democrat win, a divided Congress and a status quo Trump victory.
Nevertheless, Trump coming to power might be music to the ears of Indian stock market, as it will be great news for the Indian manufacturing industry in the short term. Any tangible gains would depend critically on India’s ability to scale the manufacturing sector and the overall infrastructure, on which the country seems to be on the backfoot in comparison with China.
(Anuj Jain is Co-Founder of Sebi-registered PMS Green Portfolio)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)