impact-of-trumps-win-on-offshoringDonald J. Trump’s election as the 45th President of The United States of America has taken the whole world by surprise. Now, the whole world is waiting to see if President Elect Trump will follow through on his campaign promises and if yes, then to what extent. His foreign and immigration policy will have wide ranging impact not just on the US economy, but world economy.

The offshore outsourcing industry is slated to bear majority of the brunt of his impending immigration policies. Some of the key ones that are causing panic in the global IT and BPO service delivery are:

Tax on Outsourcing:

During his campaign, Donald Trump mentioned that in order to bring jobs back to the US, he would impose 15% tax on outsourced jobs and 20% tax on import of goods. Whether he will follow through with this and to what extent remains to be seen, but it certainly spells doom on outsourcing industry in the near future.

While India could be one of the worst hit, NASSCOM President R Chandrashekhar believes that there is no reason for immediate panic. He feels India will have to play the ‘Wait and Watch’ game before pressing the panic button as the Indian IT industry also ends up creating jobs in the US. While Wipro, TCS and Infosys of the worlds bring cheap landed recourses into the US, they also hire considerable amount of US nationals for various IT and non IT positions.

H1-B Visa Quota:

During the third presidential debate, Trump made a comment about H1-B visas and how he wanted to eliminate the system altogether. Even if he doesn’t eliminate it completely and just reduces the H1-B application quota, it would have a significant impact on the $82 B software services export industry in India (as reported by Reserve Bank of India for year ending March 2015), as around 60% of that figure came from North America. Indian IT giants are heavy users of the H1-B visa and any changes in the H1-B policies will definitely have implications on the cost of doing business and cost of service delivery. While India is the biggest user of H1-B visas (about 86%) and thus most impacted with any change in visa policy, China uses about 5%, and Canada and others make up for nearly 9%. If China decides to take retaliatory action given the relations between US and China, the ensuing brain drain will severely affect both the countries.

US-Mexico Wall

Trump has been very vocal about illegal immigrants, mainly the ones from across the southern border. During the early days of campaigning, when he was asked about how he intended to stop the illegal Mexican immigrants from entering the US, he was quick to reply that he would seal the US-Mexico border by building a wall along the border. Most people didn’t think he was serious, until it became one of the key promises of his presidential campaign. This created quite a stir during the campaign both in the US and Mexico and it still remains one of his top priorities after coming into office, though now the wall has turned into a fence. Whether it’s a wall or a fence, it will certainly hamper the system of daily wage workers crossing the border to perform physical and menial labor in the states of California and Arizona leading to a two part problem: it will render these Mexicans jobless and also hurt the economy of states like California and Arizona due to dearth of daily wage workers thus resulting in increased wages.

But the bigger problem is that it will hurt the US-Mexico trade relations which in turn would affect the bilateral trade worth $583 B (US export to Mexico stood at $267 B and imports at $316 B in 2015 according to the office of US Trade Representative) between US and Mexico.

Additionally, Mexico serves as a popular low cost nearshore destination for ITO and BPO services for US businesses. With uncertainty looming over Trump’s trade and immigration policy concerning Mexico, both US’s buy side and the Mexican sell side are certainly waiting with bated breath to assess the impact to their businesses and formulate counter strategies.

Other Policy Implications

China has been the biggest recipient of US offshoring especially in manufacturing. The direction Trump decides to take will have the biggest impact on China, so much so that China may be left with no option but to retaliate. Recently, China expressed strong displeasure to Trump’s phone call to his Taiwanese counterpart. With two of the world’s biggest economies and trade partners at loggerheads with each other, its implications will certainly be far reaching.

Trump’s stance with Russia will be hugely dependent with the on-going Syrian crisis and how both countries decide to deal with it. The Putin government was happy with Trump’s election and the initial camaraderie between the two leaders indicates that the two countries might work closely on policies ranging from Syrian crisis to terrorism to trade, which may have some positive impact on Russian outsourcing industry.

Trans Pacific Partnership (TPP) signed between US and 11 countries along the Pacific Rim has been in the news lately due to Trump’s strong desire to back out of the deal as soon as he takes charge of the Oval office. TPP deal was signed by the Obama administration with the intension of trade liberalization where the barriers were high. But the way TPP is structured, of the 18,000 tariff cuts, US companies exported in less than half the categories to the TPP countries. Economist Joseph Stiglitz, a professor at Columbia University believes that TPP will not be as beneficial as it claims to be. He believes that some of the provisions in the TPP make it more attractive for American businesses to move jobs and production offshore. This directly conflicts with Trump’s vision for the country and it’s no surprise that he will withdraw from it as soon as he has the power to do so.

Political leaders and business leaders alike will be closely following the developments at the Capitol for the next few months and hope that President Elect Trump takes a holistic view while creating foreign and immigration policies for the next 4 years.

Aditya Shetye

Aditya Shetye

Manager - Advisory at Neo Group
Aditya is an MBA with over 7 years of track-record in research, outsourcing, globalization.

His areas of expertise include, business process improvement/ transformations, consulting, business development, digital advertising, marketing, branding and product development across FMCG, healthcare and industrial products.

He has global experience having worked, studied and lived in five countries including USA, India, Czech Republic, China and Singapore.

He is also certified inSix Sigma Black Belt
Aditya Shetye