Liberation Day, Trump Tariffs, and the accompanying Churn
Three weeks ago, I had written a blog post on Trump’s tariff economics … my take on his proposed strategies was perhaps more optimistic than what happened last night for us in India or the Liberation Day for other folks. Like most people, I had assumed that behind the bluster lay a sharp mind wanting to negotiate if not coerce ‘deals’ with US trading partners, as opposed to wantonly challenging existing global trade and supply chain models even at the risk of severely damaging the US economy.
Last night (India time), I was awake and aghast at the reciprocal tariff policies that he and a large part of powerful stakeholders have announced and planned to initiate with a goal to make America Wealthy Again.
Even the more conservative journals such as the Economist joined all of us at this strange move that is regressive to say the least. The Economist headline reads “Trump takes back America’s trade policies to the 19th century” (Figure 1)
The premise to perhaps end free global trade that began after World War II, and which has benefited the world at large including USA, has been to term this as “rip-off”!
When Trump and his allies term free trade as a rip-off, they choose to deny how free trade has delivered unprecedented prosperity to USA, and more importantly, created tremendous wealth for the rich.
So I guess April 2nd turned to be a significant day for all of us who are inextricably connected with each other across the globe. It perhaps marks the onset of recessionary trends, chaos and volatility, and re-mobilization of capital. Countries such as Vietnam, Bangladesh, China and India would be severely impacted on many fronts. President Trump still claims that the Tariffs would create income for USA (ERS versus IRS) to the tune of US 6 trillion dollars in the next 10 years, and thereby reducing even income tax for the average American.
However there seems to be many bets that Trump and the Republicans seem to be believing in and these need careful examination.
Behind the Tariff Economics — Gamble 1
Trump has invited no penalties, if manufacturing were to shift back to America, and bring employability as well as more economic power to the country — a bet that is looking more like a gamble.
There has been evidence of a Taiwanese giant on semiconductor chips wanting to invest into USA.
Why I think it is a gamble because ‘technology’ and manufacturing 4.0 also needs huge investments into capability building and skill building for labour. The new era of manufacturing cannot regress into capabilities of USA in the 1980s and 1990s — admittedly USA had the best workforce in these decades. But is USA ready for the demands of emergent technology — is it willing to re-skill and re-train its labour.
Trump has undermined the federal body of education — wanting the states to determine and take decisions on schooling and skill building. Perhaps this becomes a folly — for a federated body of skill-building and capacity building may have been the right co-ordinating body for skill-building.
Secondly if researchers and academicians start resenting other Trump policies, and if there were to be an exodus — the capability of workforce, its technicians, and its managers would get impacted as well. There are signs of this process happening as Trump policies and mandates become more right-wing — encouraging racial and gender divides, and challenging fundings for its universities.
My American friends still vouch for the resilience of the American society and its championing of humanist values and that the recent upheavals are only temporary and sanity would win — I really hope this happens — but it remains uncertain for the democratic party is at its lowest ratings all over, and there appears to be no counter to President Trump.
Behind the Tariff Economics — Gamble 2
The second gamble that the Republicans are taking is that USA would re-generate its manufacturing capability in a matter of 2–3 years if not months and not just employ more workforce but also create cheaper goods, and that the period of ‘pain’ for the consumers would be limited to this period of time. One is already hearing Trump’s colleagues speaking of cycles, the need to go beyond short term gains, to discount quarterly market movements etc.
Firstly, the consumer prices are going to shoot up on many key fronts till the period of pain lapses into a period of glory — and everything would go up — from clothes, cars, power, food to champagne, wines etc. as a result of tariffs and largely when demand outstrips local supply. Were it to peak in 2027 or 2028, Trump would have to bid for a third term and we see evidence of him seriously considering this window and working within the constitution rules or perhaps even beyond it to retain control in 2028.
Secondly, this gamble is quite preposterous for it assumes that the rest of the World would remain unchanged or the rest of the world may actually fall behind in its collective competencies and research capabilities — and that Trump would restore America back to the “golden era” (this is Trump’s claim and not backed by data) of late 1800s where USA’s rich and powerful managed and controlled significant production capabilities. Countries such as China have already built momentum on key technologies (including bio-technology) over USA, and will continue to pioneer new products and technologies that would create the next wave of economic growth.
Thirdly, What may also happen, is that the rest of the world can configure its own supply chains and its global markets, eschewing the USA markets to a large extent. The Asian countries may opt for the equally unthinkable — with growing markets in India and China and Africa — and capabilities in Europe and Canada — form new agreements and new value chains.
Behind the Tariff Economics — Gamble 3
The Dollar as a currency and how it retains its sheen as a preferred currency for trade has an impact on what may happen in the future. Were the dollar to strengthen against Asian currencies, the impact of the tariffs may get severely affected. Were the dollar to depreciate and lose its centrality in trade in the next five years, the world becomes more unpredictable. I have no clue on what may happen, but there seems to be a bet that dollar would remain a preferred currency that the world ‘trusts’.
It is this trusting that I am unsure of.
Trump Tariffs — The Silver Lining
One of my teachers — Raghu Ananthanarayanan — almost two decades ago had commented that rampant consumerism is creating huge damage to the world, its ecosystems, its environ, and till the core engine of consumerism (he was referring to US markets) remains wild and funded by debt (retail as well as international debt), there is very little hope for the Earth. Manufacturers across the world (including China and India) would want to cater to rampant consumerism and thus create more damage to their local economies and environment.
Perhaps the tariffs would not just increase prices for everything including groceries that all of us take for granted and perhaps all of us would join the incumbent American in re-calibrating how and what we consume today.
I am not sure President Trump would have this silver lining — the frailest of frail hopes in his plans to make America Great Again — but perhaps this churn would force all of us to re-consider consumerism as well as where modern capitalism has faltered.
Perhaps, amidst all this churn, lies the next phase of how humanity and the planet survive!
