If 2016 has a theme, it is this one: voters are rejecting establishment wisdom in elections, because they think it has failed them. Donald Trump’s win beat all the polls and defied the widespread belief that a recovering US economy and a popular Democrat president would be enough to elect the Democratic candidate into the White House.
Voters in the western world are favoring anti-trade, anti-immigration outsiders
One of the most interesting photo ops during Trump’s election campaign was Trump with pro-Brexit champion Nigel Farage - two isolationists standing together, two men who targeted trade deals (on the argument that it took away jobs) and immigration (arguing that it took away the jobs of citizens).
Photo: Trump with pro-Brexit champion Nigel Farage on the campaign trail (AFP)
A similar dynamic is also playing out in France - where the xenophobic, far-right candidate Marine Le Pen is contesting the Presidential elections - and the rest of Europe. These candidates became popular at a time of rising anger among the working class, who see the policies of their countries hurting them personally and economically. While this may not actually be the case - economists have argued for example that in the case of both the British and the US economies, trade has created more jobs than it has taken away - the bloc of working class voters are looking for a recognizable villain in a time of increasing poverty, and lower-paying work.
Those trends of lower income, rising poverty are not going to change with these political shifts. Neither Donald Trump nor the Brexit enthusiasts have a clear economic argument in their favor, and that will eventually hurt the politics they champion. But it will take time for that understanding to peter down.
What does this mean for India?
In the meantime, markets worldwide, including India, have taken a pessimistic view of this development. As it became clearer that Trump would win, world markets fell in a reaction similar to Brexit, before beginning to recover. Dow futures fell 750 points as Trump inched closer to victory. Markets are collectively recognizing that democratic forces are coalescing around anti-trade, anti-immigration views, and businesses will have to realign accordingly.
Trump has for instance, said that he would like to ‘scrap’ H1B visas. He has expressed strong views against trade overall, and suggested implementing large tariffs against countries exporting to the US. This would hurt India’s IT services - already struggling in the wake of Brexit - further, since the sector gets about 60 percent of its $110 billion yearly revenue from the US. India’s pharma industry which has viewed the US as an important and growing market, would also be hit, as would sectors such as textiles.
Trump also wants to crack down against US companies that have moved their operations abroad, like Ford, threatening to impose a 35% duty on Ford cars made outside the US. Ford has manufacturing facilities in 3 Indian cities - Pune, Chennai and Gujarat, as well as a $135 million business and tech centre. Other carmakers in India who export to the US - like Hyundai, Suzuki Motors and Volkswagon - would also be hit by tariffs.
In essence, the election is another data point telling us that political turbulence is here to stay, and will continue to play out in the short term across the developed world. The concerns that these voters are expressing are real, and fearmongers tend to draw first blood when voters are angry. Markets are in for a rocky ride as democracies grope for solutions.
