With less than two months to go before President-elect Donald Trump takes office, the self-proclaimed “Tariff Man” has made his intentions clear, imposing massive tariffs of up to 25 percent on the United States’ top three trading partners—Mexico Threatened to increase. , Canada, and China—on his first day in office.
While Mexico and China have hinted at possible retaliation, Canada has already started talks. However, as the world’s largest economy, once a champion of free trade, has turned protectionist, the risk of a global economic recession is rising. Fears of trade conflict are rising, especially as the World Trade Organization (WTO) remains inactive due to the breakdown of its dispute settlement mechanism.
Christine Lagarde, President of the European Central Bank (ECB) and a long-time supporter of globalization and inclusive economic policies, warned in an interview with the Financial Times that the trade war would benefit no one and could lead to a global decline in GDP. , Lagarde, who was the first woman to lead the International Monetary Fund (IMF) from 2011 to 2019, had previously called Trump’s second presidency a “threat” to Europe.
An analysis by S&P Global on Trump’s tariff wars during his first term concluded that there are no real winners in such conflicts. Countries subject to tariffs – including the US itself – suffer declines in real exports and GDP. Other countries are indirectly affected by weak demand for their exports, supply chain disruptions or slow global economic growth.
Trade experts highlight Trump’s disregard for multilateral organizations like the WTO, pointing to deeper conflicts ahead. The WTO was originally formed to promote cooperation between nations, with economic theories suggesting that countries integrated through trade are less likely to engage in military conflict due to mutual economic interdependence.
India is in a relatively better position
As Trump’s primary target appears to be China, whose trade surplus is much larger than that of the US, India is relatively untouched by Trump’s tariff war, largely because India is a low-exporting country compared to many other Asian economies, according to Fitch Ratings. Is oriented. However, if global growth contracts, it will also impact India’s exports of goods and services, especially to the US, its largest trading partner.
A report by S&P Global released on Tuesday indicated that China’s growth rate could decline to 4 percent by 2025 due to weak exports and investment due to US tariffs. In contrast, India is expected to maintain a strong expansion rate of around 7 percent, “supporting global growth”.
Despite this optimism, S&P cautioned that America’s economic performance, which has supported global stability, could change under the new administration. Policies aimed at further stimulating an already strong economy may yield better results inflationIncreased interest rates, and a stronger dollar. These impacts could tighten financial conditions in the US and impact emerging markets including India.
Notably, the US remains India’s largest trading partner, with bilateral trade exceeding $120 billion in FY 2014, slightly ahead of India’s trade with China. Unlike China, India’s trade balance with the US is favourable, making the relationship an important source of foreign exchange. Over the past decade, India’s dependence on the US market has increased, with the US now accounting for 18 per cent of India’s exports, up from 10 per cent in 2010-11. India’s export portfolio to the US is diverse, including textiles, electronics and engineering goods.
Shock from Trump’s tariff threats
Trump’s tariff threats have already destabilized financial markets and prompted a global backlash over fears of a new trade war that could impact both America’s allies and adversaries.
China has criticized Trump’s tariff plans, with China’s Commerce Ministry spokesman Yadong saying that imposing unilateral tariffs would not solve America’s issues. He stressed that the US should follow WTO rules and cooperate with China to ensure stable trade relations.
Similarly, Mexican President Claudia Sheinbaum warned of possible retaliation if Trump moves forward with 25 percent overall tariffs. Sheinbaum said the move could lead to the loss of 400,000 US jobs and increase costs for US consumers, especially in sectors such as automotive manufacturing, which is central to Mexico’s economy and heavily dependent on exports to the US.
Meanwhile, India’s Commerce Minister, Piyush GoyalCommenting optimistically, he said: “Mr. Trump is a friend of India, a friend of the Prime Minister Narendra ModiAnd I am confident that this friendship will continue to flourish, as shown by their recent comments.