The Trump Effect on the Economies of India and Pakistan
Part 1: India
A number of experts are suggesting that President elect Donald Trump’s second term offers a mixed bag, but a general positive outlook, for the Indian economy. Experts suggest that a Trump2 presidency may well engender deeper ties with the United States, especially in the areas of technology, pharmaceuticals, and defence. However, Donald Trump’s vow of tariffs and immigration restriction suggests that Prime Minister Shri Narendra Modi’s closeness to Donald Trump may be helpful in any upcoming negotiations.
As President elect Trump’s inauguration approaches (20th January 2025) there will be a seismic shift in economic policy. According to analysts, India will seek to reinforce strategic ties with the United States, particularly in the defence arena in the Indo-Pacific region, which is important for their security. It is hoped that increased ties in the defence area will positively impact the defence sector through increased cooperation and investment.
Donald Trump’s drumbeat of “America First” is led by tariffs, which could have a diverse effect on India’s economy, with the possibility of increased tariffs on textiles, steel products and automotive parts. Such tariffs would have a direct effect on India’s manufacturing sector and imports into the United States, especially as in 2024 data released show India having a trade surplus with America of USD35.3 Billion, which represents a red flag to the incoming administration.
On the currency front, experts are suggesting that under a Trump2 presidency the Federal Reserve may adopt a more hawkish outlook, due to the new administration’s economic policies. Analysts believe that these policies could have a negative impact on inflation and could strengthen the US Dollar against the Rupee, increasing costs to those Indian companies paying for imports in US Dollars. Conversely, however, a weaker rupee against the dollar will have a positive impact on the export sector with companies seeing an increased profit margin.
India stands at the crossroads with the United States, and if they strategically place themselves as a trusted and stable defence and trade partner, navigating the tariffs and immigration challenges presented by Trump2, they could very well turn these challenges into avenues for partnership and growth. If the government and businesses adapt themselves to this new scenario they should hopefully minimise risks and maximise gains especially as the President elect appears to be prioritising India to counterbalance China in the Indo-Pacific.
Part 2: Pakistan
A Trump2 presidency may, according to experts, pose a number of challenges for Pakistan, especially as uncertainty abounds in the corridors of power in Islamabad. Today, it appears that Pakistan is deemed a lot less relevant in the minds of those with power in Washington. Indeed President elect Trump views Pakistan as a haven for terrorists, and in his first term severely cut economic aid to the country. China is Pakistan’s largest trading partner and if they are to enjoy any sort of friendship with the President elect, their officials will have to walk a tight line between China (Trump2 has promised 60% tariffs on China’s exports to the USA) and the United States if they need to fulfil their security and economic needs.
However, despite these misgivings the State Bank of Pakistan recently advised that their policy of quantitative easing has supported economic growth on a sustainable basis, whilst keeping external pressures and inflationary pressures in check. Their MPC (Monetary Policy Committee) recently cut their benchmark interest rate to its lowest level for two years, with the result that inflation has eased allowing the bank to boost growth. Indeed, the State Bank lowered their target rate by 200 basis points to 13% its lowest level since April 2022.
The Governor of the State Bank of Pakistan Jameel Ahmed recently said the “the overall situation has improved on the economic front” and that the State Bank expects inflation to fall to the benchmark target range of 5% – 7%. The State Bank has cut interest rates by 900 basis points since June 2024 with data showing inflation had hit its lowest level since late 2018.
Elsewhere, the foreign exchange reserves rose to USD12.05 Billion according to data released on 6th December 2026, mainly due to Pakistani expatriate remittances, which rose by 34% to USD14.8 Billion through five months to November 2024. Pakistan’s Finance Minister Muhammad Aurangzeb has announced that he expects total remittances to hit a record USD35 Billion for 2024 up USD5 Billion from close of business 2023.
Pakistan almost went into default in 2023 but under guidance from the IMF (International Monetary Fund) have implemented tough economic measures and, in September 2024, received a USD7 Billion loan from MIGA (Multilateral Investment Guarantee Agency, a subsidiary of the IMF). However, Pakistan is loaded with external debt and as of September 2024 this stood at USD133.5 Billion with circa USD30 Billion to be repaid in 2025. Quotes from the finance ministry suggest that these loans will be rolled over or renewed, suggesting that Pakistan is not in a position to repay these loans.
Optimists beware. President elect Trump has already earmarked Pakistan as a harbourer of terrorists and the United States, as of September 2024, has a trade deficit with Pakistan of USD74.6 Billion, which puts the country within the realm of Donald Trump’s tariffs and their various economic ramifications.
