Mint Primer | How will the blue tsunami in the US mid-terms benefit India?
US President Donald Trump suffered an unprecedented blow in the US mid-term elections, losing the Republican trifecta—control of the executive, the Senate and the House of Representatives.
Mint explains how the new balance of power could play out for India and the rest of the world.
Will Trump end the Iran war?
US vice-president J.D. Vance blamed the Iran war singularly for his party’s electoral drubbing. Trump, too, acknowledged it, although in passing. With the Democrats now controlling Congress, the expectation is that Trump will hold back his aggressive instincts and opt for a negotiated settlement to the Iran war.
If that happens, crude oil and other commodity prices will ease as supply routes re-open. Oil prices have already dropped below $100 per barrel in expectation. Lower oil prices will lower India’s fuel bill, improve its current account balance and reduce pressure on the rupee.
Will global monetary tightening ease?
Possibly. As oil and other commodity prices decline, inflationary pressures across the world could ease. If that happens, central banks may stop tightening the monetary policies they are pursuing now to control price rises.
In October, the Reserve Bank of India increased its policy rate by 25 basis points to 5.5% and changed its policy stance from accommodative to calibrated tightening. If oil prices fall, the RBI could reverse its policy stance and even cut interest rates. Lower interest rates will improve consumer sentiment, drive consumption and accelerate India’s economic growth.
Is the electoral outcome anti-AI?
Not really, but experts say it is a sentiment shock for the sector because the Democrats supported anti-data-centre opposition in many US states.
It is not clear if the electoral outcome will come in the way of capital expenditure by AI companies. If it does, their massive borrowings will ease pressure on bond yields, which have increased in the US, and the risk of capital flight out of India will reduce.
Will the India-US trade agreement become a reality now?
Having lost a lot of political capital, Trump may look for some quick wins to shore it up. A trade agreement with India, which is in the final stages of negotiations, is a good option. This situation could help both nations to iron out the sticking points and sign a win-win deal.
The electoral loss has also sent a clear message to Trump that people value affordability and that mindless tariffs only cause price increases. He may wield tariffs as a weapon more judiciously now. Immigration issues, especially the H1B visa, could be handled more diligently.
Can Trump become unhinged?
He can. After initially accepting the results and agreeing to work with the Democrats, Trump later posted on social media a picture of a cap with the word ‘Veto’ on it.
A Democrat-controlled Congress could severely limit his domestic agenda, impose limits on his presidency, defund projects and worse, initiate investigations into his wrongdoings.
As a diversion, Trump could use his executive power to seek victory on the battlefield to make up for the loss in the ballot box. He could bomb Iran again. He could use tariffs as a weapon indiscriminately and re-start trade wars.