On 20th January, 2024, Donald Trump became the President of the USA for the second time. There are rising concerns among investors about what will be Trump’s policies and how it will impact markets and the economy.

Trump has a wide-range of agendas such as reforms in immigration and foreign policies, changes in manufacturing and fiscal policies of the country, and acceptance of cryptocurrency for his second term. Each of these agendas will have a widespread impact at international level.

In this term, Trump aims to make the US a manufacturing hub. He made this goal already clear in his election campaigns. He stated that he will implement new tariffs which will be higher and will cover broad-range of commodities than the earlier tariffs implemented in the years 2018 and 2019.

Total Energy Dominance
When Trump took his oath for his term as a President, he announced his plan known as total energy dominance. This plan aims for making the USA completely independent in terms of energy production. This idea will help to boost the US economy. It will lead to creation of more jobs. This plan will also help to achieve the goals outlined for the manufacturing sector and foreign policies.

The total energy dominance plan is to make the country domestically self-sufficient in terms of satisfying its own needs and also able to provide for others. This will make the USA capable of defeating rivals such as China and Russia in terms of growth and development.

To achieve this goal, Trump has chosen Chris Wright for the position of the Secretary of energy. Chris Wright is a strong believer of using fossil fuels and does not believe in climate conservation. This will possibly lead to end of Climate Change Conference of United Nations (UN). The steps to increase production and export of oil in the USA will lead to fall in international prices of crude oil and also contraction of subsidies given for green energy. It will also lead to fall in demand for both Electric Vehicles and solar power.

This approach of focus on fossil fuels will adversely impact investment made for renewable energy. In the past few years, large investments were made in production and implementation of green energy solutions for the purpose of transport and electricity. In several developing countries, these big investments are aided by government support to make them successful. However, now these countries have to reevaluate these investments.

Changes in US tariffs
In the past seven years, the imposition of the US tariff on China has surged at a double-digit average growth of 19 percent from a small one-digit form. This scenario was quite beneficial to countries such as India, Mexico and Vietnam. This term of Trump will be different as it will see a possible rise in tariff for China by about 60 percent as well as rise in tariff for all the countries in the world including Mexico and Canda by about 10 percent.

In contrast to this, a serious high rise in tariff for Indian products is not possible due to the US looking at India from a point of geopolitical advantage compared to aggressive China. Though, it has a trade deficit with India.

Despite this, India’s high average tariff for the USA products has always been a point of concern between the countries as it is quite higher than US tariffs. In consideration to this, it is important to look out for sectors such as beverages, high-end vehicles, Electric Vehicles and many more.

Coming towards the uniform tariff of about 10 can adversely affect many Indian sectors. Indian firms need to focus on changes in tariff barriers with other developing countries. This will be affected by the success of the USA shift towards other countries from Iran, Russia, and China.

In the period of Trump 1.0, India’s position as Generalised System of Prefereces (GSP) ceased. It previously gave India permission to export some products to the USA market without any tariff barriers. Later, some products such as aluminium, steel came under the purview of tariffs. Even in this scenario, India was able to increase its trade surplus with the USA due to its adoption of global supply chains. India has a possibility of getting a chance in sectors such as textiles, electronics and pharmaceuticals in this term of Trump as well. Over the period, Indian sectors such as chemical, electronics and many more are able to achieve a big position in exports.

Other reforms
Trump’s reforms focus on immigration policies, fiscal changes, liberation, and deduction of taxes. He aims to send back about 1 million of the immigrant population out of 13 million undocumentated immigrants. It will adversely impact supply chain, inflation and growth leading to stagflation.

This step by the USA will put pressure on Indian IT firms located in the USA as these companies will have to shift towards hiring locals which will be expensive and put a burden on their profit margins.

Changes in Fund Flows
It is possible for change in the channel of allocation of funds from asset classes such as equities to cryptocurrencies in the scenarios of rising policy and valuation risks in equities. This idea is supported by Trump’s support for cryptocurrency and introduction of memecoins. Despite this, wide acceptance of crypto is only possible when it will be accepted by financial institutions and have more practical uses.

The yield of 10 years has surged significantly due to the strong US economy, possibility of new tariffs and big fiscal deficit. This situation is not good for developing countries like India. The Indian market is performing low due to large FII outflows and rupee depreciation. Despite this, there is a positive signal of stabilisation as USA’s high interest rate has the desired outcome and this could possibly lead to deduction in interest rates. Overall, the yield and dollar index can possibly stabilize and give good signs to developing countries.