Sending the world into a spin

Ever since he took oath on January 20, for his second term, as US President, Donald Trump has sent the world into a spin. His domestic and global decisions have made the world a far more difficult place than it has been since decades. It is noteworthy that his often-erratic policies and actions are happening at a time when advances in digital technology are already causing disruptions in almost all areas of global life. In addition, the world is confronted by existential crises beginning with the consequences of climate change.

In this international setting what is needed of the top leadership of the United States is a steadying hand and the creation of conditions for cooperation among major world powers. Trump wants to ‘Make America Great Again’. In fact, the way to make it truly great is by the country leading to making the world adjust to the changes being brought about by the new technologies and chart a path to mitigate and adapt to the global existential crises. What Trump is doing is the precise opposite. Over the past eleven weeks or so Trump’s policy decisions and his bluster and inconsistent statements have been confusing the world more and more.

But all that he did since January 20 paled into comparative insignificance as compared to his decision on the application of reciprocal tariffs on April 2. I had covered some aspects of the implications of his decision in my column last week. I am compelled to return to the theme this week too because of the international response to Trump’s decision, the disastrous confusion it has caused in the world and, above all, because of the summersaults that Trump has made on reciprocal tariffs. His gymnastics are leaving the world dizzy and gasping.

Trump and some of his cronies—not all though---are taking great pleasure in the acute discomfort his actions on reciprocal tariffs have caused the world over. He is himself using profane language to express his delight that many countries are lining up to seek concessions from the US on tariffs or are wanting to do deals. That is not what great leadership is about. It is about predictability and regulated change. Trump is taking steps that are the opposite of these eternal principles of leadership. Leaders of great powers are especially required to follow these principles in contemporary times even as they seek to promote their national interests.

Except for China the rest of the world reacted with great caution to reciprocal tariffs. The leaders of countries on whom high tariffs were imposed expressed disappointment and even anger but they did not enhance custom duties on US imports. They all wanted to discuss the tariff issue with the US. Many countries, including India, indicated that they wanted to enter into Trade Agreements with the US. Indeed, India was, in a sense, ahead of the pack because discussions on the elements of a Trade Agreement were held between Indian and US officials prior to the announcement of reciprocal tariffs. China took a retaliatory position. It announced countervailing tariffs and also took negative positions against some US companies’ activities in China.

While all this was going on between governments the global economy went into deep gloom. This was witnessed in the steep fall of stock markets all over the world, including in the US. This naturally caused Trump concern. His initial reaction was that the US would have to undergo some hardship for long term gain. This gain, as noted in my earlier column, would be in an increase in US manufacturing and greater US exports. However, as the US stock market continued its steep decline over two days and was still in negative territory over the third it was becoming clear that the markets and US investors were deeply concerned by Trump’s reciprocal tariff earthquake. Finally, when it became clear that global investors were no longer willing to bet on US treasury bonds or the US dollar which are traditionally the basic refuge in economic crises Trump and his advisors realised that they had to change course.

That is why on April 9 Trump announced that he was giving a 90-day moratorium to all countries and that only a basic duty of 10% would be charged for all US imports during this period. He expects that the concerned countries would be able to adjust and arrive at understandings on the tariff and manufacturing issues with the US during this period. The only exception to the moratorium is China on which Trump increased tariffs to 125%. The indication is that this has been done because China has had the temerity to counter Trump and enhance duties on US imports.

The US and other stock markets reacted very positively to Trump’s moratorium. However, this is only a temporary reprieve for the world because not only can the mercurial Trump change his mind during this period but the question is what would happen after 90-days. The uncertainty will lead to a hold on economic and commercial decisions of major companies and of countries till a more definite and enduring path can be seen.

As for China: it is clear that Trump wishes to enter into long battle with China in an area of its vulnerability—the importance of the US export market to it. However, Trump should know that the real war for global influence the US has to wage with China are in the fields of science and technology and of assistance to poorer countries. And, his erratic behaviour as compared to the consistency of the Chinese does not engender confidence in the US in most countries.