The US economy itself could suffer a downturn due to trade tariffs
The tariff regime that Donald Trump invoked using his emergency economic powers has the potential to start a trade war which will have consequences for global trade that may be worse than the one that the Covid pandemic wrought five years ago. The US President’s sweeping tariffs on Canada and Mexico at 25 per cent and China at 10 per cent will not only roil supply chains for a range of products but also set off inflationary pressures that were not seen even in the aftermath of the global shutdown.
The clamping of tariffs is just beginning with Trump threatening to impose them on the EU too. The economies that will be taking a direct hit like that of Canada and Mexico walk in fear of slipping into recession. The aftereffects of Trump’s unilateral actions that are in breach of trade agreements existing between the countries he has taken aim at thus far are too fearful to contemplate for a world that is just about recovering from runaway inflation and associated problems in the 2020s.
The US economy itself could suffer a downturn if these tariff bullets being fired from the presidential weapon spread out and drag more countries into it, but which actions will be solely dependent on Trump’s views on trade issues with the rest of the world. The trade barriers could render the global economy even worse if Trump places tariffs on energy imports too as costlier oil would mean that the inflationary risks will be higher globally with an immediate effect on the cost-of-living indices.
There may be reason to believe that a transactional president may only be posturing with the initial round of tariffs to gain the upper hand against those who trade with the US because they are dependent on the ability of the biggest economy to buy the world’s goods and services. For instance, China has not retaliated with like-for-like tariffs like Canada and Mexico. That country is said to be exploring avenues which could placate the US like restoring the 2020 trade deal, examining the fentanyl exports issue and even step up investments in the US.
India has thus far stayed on the safe side of the tariff fence but that could be because its trade may not be that significant for the US to take a harsh look at it. India has also lowered the customs duty on high end motorbikes like the Harley Davidson and fancy electric cars like the Tesla to less imposing levels from a punitive range greater than 100 per cent to less intimidating levels to keep on the right side of Trump.
Trade as a geopolitical tool is a fearsome weapon and one which the modern world with its myriad problems of rising cost-of-living and the awkward issue of distribution of wealth can hardly countenance. A maverick resident of the White House, with a propensity for flip-flops, is probably not what the doctor ordered at such a time. And yet this is the alternate reality that the Trump ascension was bound to bring to the global economy.
Negotiating such a perilous trade and tariffs journey is not going to come from an elementary playbook. India has done well thus far to keep on the sidelines. But it is going to take much more than just relying on the US recognising India as a counterbalancing influence on China’s perch on the high table of world power. India may have to be proactive in taking measures that will level the trading field with the US by sacrificing high tariffs and duties while trying to sustain its exports to the US that were to the tune of $82 billion in 2022 and $75.6 bn in 2023.
