President Trump is creating uncertainty for the global economy. And it seems hard to stop him. His reckless behavior not only hurts the US economy but all other major economies as well. The recent, or rather continuing bloodbath on the Indian bourses is also partly due to the worsening Sino-US trade ties. The global economy is in no state to withstand the recklessness of the leader of the most powerful country.
The Chinese economy is a poor second but its resilience is underestimated by the bull-in-china-shop, that is Trump. Of course, it is a huge irony that the US which virtually forced other nations to lift trade barriers is doing its damnedest to enforce a crude form of protectionism. Last Friday, Trump imposed 25 per cent tariffs on another $200 billion of Chinese imports over and above those he had slapped earlier.
Trump does what he does in the certain belief that his base would endorse his getting tough with China which does have a huge trade surplus with the US. Some months ago, he had kicked off the fight with China by slapping harsh levies on a whole host of imports. The ensuing talks to come to a negotiated settlement failed. China retaliated by reducing the import of agricultural commodities from the US.
This hit his base in the farming States. Soybean farmers complained of a glut of unsold produce. And Trump offered the palliative of further cash subsidies but this cannot be a lasting solution. According to one figure, the export of agricultural products to China was over $ 30 billion in 2001 when China joined the WTO. It was $13 billion last year. Contrary to the general impression, the US consumer is a beneficiary of Chinese imports. China in tit-for-tat tariffs has imposed higher duties on US imports. But because
Trump’s base of “deplorables”, as his challenger in the presidential race, Hilary Clinton, had called them, is unbothered. His supporters are swayed by his bombast, his ill-informed tweets and false claims about being a great deal maker. Incidentally, last week the New York Times exploded the myth that he is a successful dealmaker. His tax returns in the late 90s revealed that he had actually claimed losses of over one billion dollars over a ten-year period.
But an unfazed President of the United States reacted to the report, boasting that not paying taxes was a feather in his cap, everyone in the real estate sector does it. He had claimed highest loss in the US in the decade under review. Such unconventional thinking has informed his presidency from the moment he stepped into the White House. He cancelled the Iran deal much to the anger of his European allies.
The Iranians are hurting due to stringent sanctions and now threaten stability in the region. He has scrapped with Mexico and Canada, reneging on the North American Trade Agreement and negotiating a fresh one whose benefits remain unclear. He has of course rejected the Paris environment agreement, denying that global warming is a genuine threat. Now, he has taken on the Chinese. Who are neither Mexico nor Canada.
The Chinese are giving back as well as they get. A trade delegation to negotiate an agreement was in Washington last week but it seems the talks floundered on Trump’s stubbornness to impose tariffs unless China surrendered on intellectual property rights, opened up its economy to the US companies and withdrew duties on a whole host of US goods to balance the trade. Given the huge gap, the last seems an impossible ask.
Meanwhile, economic pundits have pointed out how the US has gained after China joined the WTO in 2001. US exports are 85 per cent higher than in 2001. The US economy has come under pressure and will slow down if the fight with China remains unresolved.
The uncertainty has had its ripple effect on the Indian economy as well, with Trump repeatedly complaining of India’s protectionist levies on US imports. Being nasty to allies is now his calling card. In all this, the US Congress is reduced to being a mere spectator, with Trump refusing to heed the advice of his own party leaders. Unless he is checked, his antics could damage the economy and lead to job losses.
Observers believe that Trump is unlikely to relent until after the presidential poll later this year. He is bent on projecting himself as a strong leader regardless of the damage he does to the US and the global economy. Ill-winds blow for the global economic order. India needs to be extremely watchful.