Spotting the opportunity in Trump’s H-1B salvo
Beyond the initial pain, the opportunities to upscale human capital and drive innovation are most certainly significant gains for India
What impact will the numerous actions the US has taken, in a somewhat haphazard manner, in the last six months have on its own economy and that of India? What will, for example, the impact of charging for new H-1B visas achieve for the US? To answer this, we need to understand the US exceptionalism that allowed a country with 4% of the world’s population to produce 27% of global GDP, account for 50% of global market capitalisation, and be an undisputed leader in technological innovation. Just between 2020 and 2025, its economy in nominal terms grew from $21.4 trillion to $29 trillion. It is worthwhile to examine what underpins US exceptionalism and why I am puzzled by the actions of President Donald Trump, as I feel they erode the foundations of what made America great.
Post-World War II, and especially after the fall of the erstwhile Soviet Union, the US had become the sole global superpower, and the US dollar was the global reserve currency. By 2000, the US was the largest trading partner for most of the world. In the last 25 years, even though China replaced it as the world’s largest trading partner, the US dollar singularly remained the global reserve currency. Being the reserve currency was a remarkable privilege. The US attracted $62 trillion (40% of which was in fixed income) at low rates while earning more on its $35 trillion invested abroad to allow it to have a positive net investment income overall.
Four factors underpin the US’s continued success economically: It attracted the best global talent, had the best universities in the world with the highest funding for R&D, the US dollar was the reserve currency, and the US received a net $27 trillion dollars (or essentially unlimited) risk capital, and American companies earned the highest profit margins, due to a combination of very strong R&D, top talent, access to plentiful cheap capital, and the ability to outsource manufacturing to access cheap and disciplined labour anywhere in the world (often with countries throwing in incentives like free land and tax breaks to attract its investment) that would manufacture for the US at the thinnest margins. Despite how some American communities were hurt by the shifting out of factories from their neighbourhoods, even the White middle class in the US did better than their counterparts in most of Europe.
During Covid, it is true that supply chain disruptions highlighted that some minimum manufacturing needed to be present in-house to curb dependence. But the impact of the current actions in the long run appears to me to be self-defeating. While tightening immigration and changing asylum rules had almost bipartisan support, tightening H-1B visas hits American technology companies the hardest. Over 70% of H-1B visas were given to Indians, though this number had been coming down. Closing this avenue will start cutting the tide of cheap talented workforce in the technology sector, the bedrock of US innovation.
The attack on top universities such as Harvard has already had an impact on the applications to the US globally and from India. They are down more than 27%. Currently, the US earns around $44 billion from foreign students, with around $20 billion of this coming from India. This will fall, but more importantly, the flow of global talent to the US will decrease. American companies will not have the pick from the best in the world.
This combined with a sustained attack on the US Federal Reserve’s independence will worry bond markets and the current depreciation of the dollar supposedly to spur manufacturing will impact the inflow of limitless capital to the US. Already one can discern a shift away from the dollar as central bank holdings of gold have spiked and even the euro and the yen have increased. Attracting manufacturing back with tariffs will reduce the profits of American companies that will lose access to cheap labour and other incentives. So, American consumers will be faced with higher priced goods if produced internally or through high tariffs on goods imported.
For India, this opens a very definite opportunity. Over the past decade, India has become a consequential economy, adding $5 trillion to the global GDP — going from 1.5% of global GDP to almost 7% of the global GDP. Our equity markets offer the best multiples, supported by domestic investors. And subsidiaries of global MNCs listed in India enjoy higher multiples than the parent companies in their home markets.
India needs to capitalise on the presents offered by the Trump presidency after the initial pain felt by a few companies. Four actions are needed to do this.
It must attract $100 billion from the $27 trillion that is going to start getting very poor returns in the US. It must also attract 20,000 of the 290,000 Indians on H-1B back to India. Each company should target hiring 25 to 50 people. The government could consider creating 10 centres of advanced learning (artificial intelligence, biotech, human brain research, quantum computing, robotics, etc), thereby supporting the creation of an entire value chain with just ₹1,000-crore investment for each.
The AI centre should be in a state that offers land for data centres, attracts an advanced data global capability centre, and encourages corporate partnerships with the advanced centre.
Corporates should see how to raise their R&D spend from today’s abysmal 0.56% to 1.56% of GDP by using these centres in partnership. To curb the loss of $70 billion we spend each year overseas on education, can we relook our education policies to spur the start of 10 new universities, hiring faculty from the US? This could possibly be done in collaboration with overseas universities, in a for-profit education sector with less curbs on it.
Trump has created the opportunity for India. It is up to us to grab it. The future is in our hands.
Janmejaya Sinha is chairman, BCG India. The views expressed are personal
