Signs of Tectonic Shift

Post the Cold War, globalisation, free trade, and multilateralism became accepted templates of economic thinking for decades. The global economic order, too, was shaped by these principles and the belief that trade liberalisation promotes growth and efficiency. Well, it was all fine until a man named Donald John Trump, in his typical style, began dismantling the happy free trade consensus with what looks like an eventual aim to break it down altogether. The larger and long-standing consequences that will unfold worldwide in the years to come, following these “Trumpian” antics, are far more significant than the percentages of tariffs being so vigorously discussed in the media. Going forward, these are likely to have a far more systemic impact on the fundamentals of economic thinking, international relations, and eventually even the politics of nations. The process has just begun.

At the most fundamental level, governments worldwide have begun to adopt the view that trade now needs to be managed and is too risky to let run free. The management of trade and the crafting of its policy will now be seen as essentials of statecraft — routes to protect the economy and the country. Trump has also shown that it is par for the course to use trade as a tool for economic extraction from weaker economic partners. It will also be considered legitimate to use tariffs, subsidies, and friendshoring investments to decimate competition. In the end, we are moving towards a scenario where each nation will unabashedly be for itself and for its select friends. Even the idea of general economic cooperation as a principle will be discarded as an anachronism. It will be all about transactions and “deals,” as Trump likes to put it.

The atmosphere thus created will be conducive for slogans of national security and economic sovereignty to gain popularity. These will come in handy for muscular demagogues to stir up nationalistic fervour and even xenophobic fears. Trump’s friends — the right-wing parties already witnessing some sort of ascendance in Europe — will gleefully accept these developments. Countries, in general, will gravitate towards autarky and will try to attain self-sufficiency, especially with regard to food, energy (oil, gas, and coal). There will be a scramble to secure alliances for new-age materials like lithium, lanthanum, terbium, yttrium, cobalt, nickel, graphite, silver, magnets, etc., necessary to sustain the new electrical and hydrogen energy–led future economy.

The world order can no longer be trusted to supply these as and when one wants them. Size- and resource-wise, it is simply not possible for every small country to achieve this level of autarkic self-sufficiency. With notions of multiculturalism losing force and the UN becoming a “talk shop” no one takes seriously, countries will, out of necessity, form smaller alliances based on mutual interests and promises. China has already signed multiple trade deals — RCEP, EU-China CAI — and has been promoting its Belt and Road Initiative (BRI) vigorously. There has also been a proliferation of trade blocs and regional agreements — USMCA and EU deals in the West as well. The common feature of all these and MFN agreements is that they simply ignore the WTO framework. Today, the WTO lies as a failed dispute-redressal mechanism in international trade; forget Trump — it has no executive power to compel even smaller nation states to do its bidding.

As the US withdraws from or reduces its engagement in many multilateral bodies, China, Russia, India, Iran, and even many unlikely countries will join new formations in the next few months, as some sort of survival-based mutual back-scratching arrangements emerge. If Trump indeed carries out his outlandish threats, with their backs to the wall, we should not be surprised if soon Putin surfaces in Delhi for discussions — and there is already talk of PM Modi going to Beijing to reconfigure economic ties. In the new world order, the bygones will be bygones. Old foes will become new friends. In Europe, many old, trusted friends of the US will find it difficult to swear allegiance to the new version of their old friend — the USA.

Many countries, big and small, are now talking about their version of “Make in India” and reinventing slogans like “MAGA.” Schemes to heavily subsidise strategic sectors like energy, batteries, semiconductors, solar power, etc., like the PLI scheme in India or the CHIPS Act in the USA, will become a universal practice. After all, Trump does not have a copyright over subsidies or tariffs. Every country or alliance will become ingenious in finding ways to beat the newly evolving system. Supply lines will eventually become regional, decentralised, dispersed, and camouflaged. You do not want my pharma? Eventually, I will get it repacked in a country that is both your friend and mine — and hence does not attract tariffs from you. New business models of these creative supply chains, re-packing, and “country of origin” flipping will flourish. The new trade may not reach the size it once did in the era of free trade, but it will not vanish. It will remain sizable. If history has taught us anything, it is that the economy and entrepreneurship, in the long run, do not respect man-made boundaries and barriers.

Europe may claim that, by and large, it follows rule-based trade, but there are clear indications that European nations are gravitating towards autarkic ways in a measured manner. The fiercely pragmatic Germans, Dutch, Swiss, and Scandinavians have realised that, given the idiosyncrasies of US politics, a bit of decoupling from big brother is not such a bad thing after all. Many other nations, like the India–Russia and China–Africa blocs, are already working on trade outside the shadow of the dollar. De-dollarisation, in Donald’s time, is likely to accelerate. China has been a strong voice for many years, trying to persuade nations to trade through a jointly created currency, and now the merit of its argument is likely to be recognised faster. The new order is likely to throw up a multi-polar world, which in turn will eclipse the grandiose plans of world domination that Trump or even Xi may have had. Xi’s plans, if he had any, were outsmarted by the “first on the draw” tantrums of our man Trump. Be that as it may, the nutshell of it is that, eventually, the days of single or dual-nation domination will be gone. Going forward, Trump’s antics have ensured that countries will balance global integration with domestic protection, efficiency with resilience, and economics with geopolitics. The days when free trade was sacrosanct and untouched by sectarian disputes have been buried.

It is not the 25 per cent or 150 per cent tariff that is important. Given his personality, it is not unlikely that much of what Trump has said (or boasted) may, in the next few months, prove to be typical political grandstanding. But even if we assume the most pleasant scenario — that things go back to where they were — the biggest tragedy is that the faith in the free, uninterrupted trade regime between nations has been shaken for good. It has made every nation nervous, and every nervous nation is unlikely to return to the laissez-faire globalisation of the early 2000s. Even if they do, they will tread with caution. The seeds of suspicion have been sown — and sown deep. Without certainty of supplies and without assurance of transparently arrived-at prices of goods, all nations will try to close ranks at home and find a number of “go-to” plans to keep essential raw materials and goods flowing. To do so, they will have to show flexibility and not be bound by historic alliances, which can at times be restraining. Ideologies be damned — history may one day thank our man of the moment, the megalomaniac Donald John Trump, as the man who wrote the future…even if unwittingly so.

The writer is an Ex-IPS officer and he writes regularly on policy and economy. Views expressed are personal