The global economy’s roller-coaster ride since US President Donald Trump’s tariff announcements this month rattled the world. The days since have seen back and forth retaliatory tariff increases between the US and China, negotiations between the US and more than 70 nations, and the financial markets fall precipitously and recover.
At the time of writing this column, Trump had announced his latest surprise, a 90-day pause on tariffs, along with a vastly reduced interim tariff of 10 per cent, except for China. He upped the tariff on Chinese imports, for the third time, to an eye-watering 145 per cent.
India’s dealings with the US, from the outset of this second Trump innings, have been cool, calm and collected. Without any fanfare, or any retaliatory statements, or counter tariffs, Prime Minister Narendra Modi and his team have worked with the US behind the scenes, in an understated manner aimed at seeking solutions. So effective has this been that not only were the initially announced tariffs against India less than on competitors like Vietnam and Thailand, but Trump also publicly praised his “friend Modi” as an astute negotiator.
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That is high praise indeed from the president who authored the 1987 bestseller The Art of the Deal, which he has been unsubtly gifting to other global leaders. Modi’s reputation ought to be no surprise, since he has made a career out of proving that every crisis also presents opportunities. That is something he deeply believes in, and often points out to colleagues in the BJP and the government. This was recently corroborated by the unexpected praise from longtime critic Shashi Tharoor, who lauded the prime minister for the way he handled Russia and Ukraine.
The trade wars and global economic upheaval unleashed by Trump are, in fact, a return to the way the world worked a century ago. The era of globalisation that increasingly became a way of life started gaining ground after World War II, and especially sped up since the collapse of the USSR in 1991. The latter half of this era saw the transition of the US—the world’s largest economy and pre-eminent military power—from an industrial goliath to a post-industrial economy.
The America of today, still the world’s leading innovator and creator of new technologies, is even more notable for being the world’s biggest consumer. While China became the world’s factory, many, if not most, of the world’s economies have become dependent on exporting to the US, which in turn has a trade deficit with a large number of countries.
India’s challenges in this uncertain new world could arise from any significant hiccups in the agricultural sector, potentially impacting the 245 million Indians employed in it. On the other hand, the opportunities lie in our relatively high domestic consumption and low export dependence. Compared to China, for instance, India has far more headroom to negotiate and adapt to changing trade scenarios. India’s domestic private consumption, at 60 per cent of GDP, makes us more resilient to trade disruptions than the Chinese, with domestic consumption at only 38 per cent of GDP. Similarly, India’s exports at 21 per cent of GDP make us less vulnerable than China, where exports are 40 per cent of GDP.
This explains China’s apoplectic reaction to the Trump tariffs, which will have a gut-wrenching effect on its economy. Long accused by others of gaming and misusing the liberal global trade regime that helped it to rise, China now has a tough reckoning. In contrast, India’s lesser challenges are outweighed by many new export opportunities arising from the US rewiring its own and reshaping the world’s economies.
Baijayant ‘Jay’ Panda is National Vice President of the BJP and is an MP in the Lok Sabha.