By Dr. Nilanjan Banik
The outcome of the November 3 midterm elections has not got in favour of Mr. Trump. Republicans lost both the House of Representatives and the Senate. For India, however, the outcome of the midterm elections is unlikely to make much of a difference. A Democratic House would not bring a sharp reversal of the Trump administration’s economic agenda. It would, instead, create a more complicated form of continuity: tariffs will remain largely intact, fiscal negotiations will become more confrontational, and the courts and the Federal Reserve will matter more than Congress in determining the direction of policy.
A Democratic House could pass bills seeking to repeal tariffs, demand information from the administration and investigate the costs of trade restrictions. But with Republicans retaining the Senate—and with the president possessing veto power—such initiatives are unlikely to become law. Tariffs imposed under Section 232 (Trade Expansion Act of 1962) and Section 301 (Trade Act of 1974), which bypass the Congress, can sustain much of Trump’s tariff regime.
Mr Trump has moved from a relatively identifiable tariff regime to a layered structure involving national-security tariffs, trade-remedy investigations, and country and sector-specific measures. The Supreme Court’s rejection of tariffs imposed under the International Emergency Economic Powers Act did not end protectionism; it encouraged the administration to rely on alternative provisions such as Sections 232 and 301. Sections 232 and 301 relate to unfair trade practices.
That is important because India’s expanding manufacturing capacity, subsidies and industrial-policy programmes may increasingly attract scrutiny in Washington. What India views as development policy could be interpreted by US agencies as market distortion or excess capacity. In fact, there is no reason to believe that a Democratic return to the House of Representatives will benefit India. Much of the protectionism introduced under Trump 1.0 continued during Joe Biden’s presidency.
Over the past century, global trade volume has grown faster than global GDP (read: income). Since 2008, however, this trend has reversed. Trade is growing more slowly, not only because global GDP growth is lower, but also because of exogenous shocks such as the wars in Europe and the Middle East. Recent estimates suggest global growth will slow to 2.6% in 2026, down from 2.9% last year. This is worrying. On the demand side, sluggish import growth limits export opportunities and can drag down individual countries’ growth. On the supply side, slower trade reduces the scope for productivity gains from greater specialization and technology diffusion. Weaker productivity growth, in turn, fuels call for protectionism, as people feel their jobs are being taken away. Trump’s return to office rests on this assumption: that tighter immigration and a more protectionist domestic market will Make America Great Again (MAGA).
But the evidence suggests otherwise. Take immigration. The US has historically used foreign migrant labour, skilled and unskilled, without significantly displacing native workers or raising wages. Without immigration, population aging in the US would have shrunk the labour force by about 1.2 million between 2019 and 2023. Aging also threatens the tax base that supports Social Security and Medicare. Maine, the oldest state, with a median age of 45.1, illustrates the point: its $1 billion lobster industry increasingly relies on foreign-born workers as native white-majority population are not available to take up such jobs. Electorally, it is easier to sell the story that immigrants take jobs, even though economically they help the economy. The tightening of H-1B norms and the suspension of the PERM labour certification program, a step toward employment-based green cards for companies like Microsoft, Adobe, Capgemini, and five other Indian IT firms, is likely to continue alongside harsher immigration policies.
Beyond immigration, AI is adding another source of disruption. In this age of algorithms and start-ups, wealth is concentrating in the hands of a few. Although the US economy is growing strongly registering a 2.5% growth, many voters feel economically insecure because wage gains have not kept pace with the rising cost of living. Much of the US GDP growth is fuelled by investment in AI, with its contribution reaching 1.4% of the GDP in the first quarter of 2026 which used to be only 0.5% between 2015 and 2023.AI workers earn, on average, 60% to 120% more than other skilled workers.
Even with strong GDP growth, average household earners remain anxious about everyday expenses such as food, housing, transport, and services. Across the economy, the Bureau of Labour Statistics’ Employment Cost Index showed inflation-adjusted wages and salaries falling 0.4% year over year through June. Inflation is also biting harder: the headline rate has crossed 3%, gas prices are up more than 40%, and mortgage rates exceed 7%.
With the US inflation hovering around 3% well beyond FED target of 2% level, there is a chance of FED raising policy rates one more time this year. This would mean two things. First, with the bond yield rising in the US there is a likely chance of another round of Foreign Institutional Investors (FII) outflow from the Indian economy with a negative bearing on the Indian stock market. In 2026, FII have pulled out over $40 billion from the Indian stock market. Rate hike in the US will also make dollar stronger. A stronger dollar can raise the rupee cost of imported crude oil, machinery, electronics and intermediate goods, with a negative impact on India’s current account deficit. Third, imported inflation can complicate the Reserve Bank of India’s policy choices. Even if domestic growth weakens, the RBI may have less room to ease monetary policy if currency depreciation threatens inflation.
US tariffs are pushing multinationals to shift and diversify production across countries with better investment prospects. India is a natural candidate because of its market size, labour force and strategic importance in the Indo-Pacific. The growth of Global Capability Centres (GCCs) is a case in point. India produces about 2.5 million high-quality STEM graduates every year, an essential input for sustaining GCC expansion. Investment is flowing in, with around $100 billion commitment.
This success owes much to the fact that GCCs provide high-skilled services, which are far less exposed than manufacturing to constraints. For India to become a manufacturing hub of choice, investors will compare India not only with China but also with Vietnam, Mexico, and Indonesia. India must therefore move beyond incentive-led industrial policy. Production-linked incentives can support scale, but they cannot substitute for efficient ports, predictable taxation, flexible logistics, reliable power, skilled labour and faster dispute resolution. (IPA Service)
(The Author is Head, Economic Policy Center, Mahindra University, Hyderabad).
