‘India ‘relatively exposed’ to changes in US trade policies’

‘India ‘relatively exposed’ to changes in US trade policies’
Amid rising fears about the direction American trade policies will move under President-elect Donald Trump, a Wall Street brokerage has placed India among the countries which are “relatively exposed” in case of a switch to protectionism but China will be the most impacted.

Countries including India are “relatively exposed” under a change in the US trade policies, given that America currently runs a sizable trade deficit against them, Morgan Stanley said in a report on Friday. Other countries which would be affected are – Germany, Philippines, Italy and Thailand, it added.

India had a services trade surplus of $7 billion with the US in 2015 as most of the domestic software companies earn more than two-thirds of their business from the US alone.

The $150-billion domestic IT and IT-enabled services sector has been looking at American developments very keenly after Donald Trump was voted to the White House.

IT industry lobby Nasscom has cut its growth estimate for 2016-17 midway through the fiscal on a slowdown in demand.

The American brokerage, however, said a rise in protectionism as displayed by Trump in his campaign is not its base case but a risk of its occurrence is “meaningful”.

Relocating production back to the US implies output and employment losses for its trade partners, and potentially lower FDI inflows from the US in the longer run, it said, adding countries having a competitive advantage on trade deficits can be targeted.

The report said China, which accounts for a bulk $348 billion deficit for the US from a goods trade balance side, will likely be among the most affected countries.

On the growth impact and measures to support GDP expansion if such a move indeed gets adopted, the report said, there is a limited room for further easing in monetary policies because of limited real rate differential with the US and current account deficit.

“We believe that fiscal policy will be a preferred tool to support domestic demand across the Asian region,” the report added.

Trump will assume office on January 20. 


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