Trump’s Tariff Tantrums

Global economies are going through torrid times. If Donald Trump sneezes, the world can catch a flu. We’d never have thought that such a precarious scenario was even possible; but that day has been here. Ever since Trump resumed his role as the most powerful man in the world, much of the world has been on tenterhooks. This was a world leader of whom few assumptions could be made; the most probable being that he was here to shake things up. So far, Trump’s unpredictable policies have mirrored only his unfathomable histrionics.

Ever since January 20 of this year, the world has been affected by Trump’s whimsies. On February 1, he signed executive orders imposing 25 percent tariffs on Canada and Mexico, and 10 per cent on China. With China retaliating with counter tariffs of 10-15 per cent on US farm and energy exports, the age of the tariff wars was truly upon us. On February 10, Trump expanded steel and aluminium tariffs to 25 per cent for all countries and withdrew exemptions. February 13 became the harbinger of more bad tidings with Trump announcing “reciprocal tariffs” in sync with the trade barriers of other nations. The Ides of March only exacerbated the situation with the US doubling China tariffs to 20 per cent and unpausing the tariffs on Canada and Mexico. Canada responds with tariffs worth USD 21 billion while China ups the ante with 15 per cent tariffs on US agriculture. April brought no respite with a universal 10 per cent baseline tariff on all imports, implementing higher tariffs for China, European Union (EU), and Vietnam. Stock markets crashed on April 3 signalling growing trade uncertainties. Trump doesn’t back down against China and raises tariffs by 125 per cent on April 9 but spooked by panic across bourses, suspends reciprocal tariffs for 90 days for all other nations. May brought on fresh negotiations, the UK trade deal, an agreement with China to cut reciprocal duties to 10 per cent for 90 days, and threats of 50 per cent taxes on the EU. On May 28, a fortuitous decision from the US Court of International Trade ruled that Trump had transcended his authority under emergency powers and illegally invoked the 1977 International Emergency Economic Powers Act (IEEPA). A day later, the US Court of Appeals for the Federal Circuit stayed the lower court’s direction and allowed the levies of April 2 (called “Liberation Day” by Trump), to remain in effect while the government appeals.

The last few months have been a roller-coaster of taxes and counter taxes coming in at breakneck speed. Such quick changes, introductions, suspensions, and implementations, have never been witnessed in decades of a nation’s existence. It’s becoming increasingly clear that periods of stable global trade may come in brief periods. And all fears of Trump’s protectionist policies are also being supplemented by his caprices. This is far from ideal for a world that is still recovering from the repercussions of the pandemic and finds economies greatly disadvantaged by ongoing wars. But as far as Trump is concerned, he seems to be making good on his MAGA (Make America Great Again) promise to US citizens. The tariff wars have increased the average US tariffs from 2.5 per cent in 2024 to the current 17.8 per cent. The hike is likely to raise an estimated USD 2 trillion over the next decade.

With Trump at the helm, uncertainty is the new reality, and nations must brace to navigate these challenging times. Incessant market disruptions, stock market seesaws, heightened trade wars, nebulous legality of policies will be par for the course. With Trump calling the shots, we can expect quid pro quos, tit-for-tat, muscle flexing, and complete volte-face — moves that will feel more juvenile than statesman-like. The Trump administration is overhauling decades-old trade policies of the US and we can forecast that his antics can severely impact other nations, especially emerging superpowers such as India.

In light of the latest developments, India should cease ongoing negotiations and revisit trade agreements insisting on permanent exemptions, which can safeguard against future turmoils, of which there could be many. This is the time for Indian diplomacy and economic parleys to shine — we must proffer astute, well-balanced trade agreements with the US. The time is also ripe for India to strengthen regional trade ties and quicken Free Trade Agreements (FTAs) with ASEAN nations, EU, and UK. The manufacturing and export markets are heating up, and as US and China trade tensions increase, India has the rare opportunity to nail changes in the supply chain of industries such as pharma, textiles, electronics, and chemicals. But to do so, we will have to ramp up our manufacturing capabilities and compete with countries such as Vietnam, which operate at lower input costs and duties on raw materials. Most crucially, we must empower our export-focussed domestic companies and help them become more competitive. We must offer incentives and friendly policies to lure manufacturing to India, aid exports, and fortify trade infrastructure. India can be the stable ground for countries and corporations — and if we play our cards right, this will be the time to seize the day.

The writer is an author and media entrepreneur. Views expressed are personal