Global trade may fragment further under a Donald Trump presidency

The election of Donald Trump for a four-year term as President of the United States increases the uncertainties in the global geopolitical scene and trade prospects. Equity markets have, however, reacted positively at the pros–pects of tax cuts that can fuel economic growth in the US.   

In his first term that started in 2017, President Trump pulled the US out of the Paris climate accord, the World Health Organisation and Trans-Pacific Partnership trade negotiations. He started a trade war by raising the tariffs on many items originating from China, Europe and some other countries who all retaliated by imposing higher tariffs and restrictions on imports of various products originating from the US. He renegotiated the trade deal of the US with Mexico and Canada, refused to okay the appointment of the Director General of the World Trade Organization (WTO) and wrecked its dispute settlement mechanism by refusing to allow appoint–ment of enough referees at the appellate forum.  

During the election campaign this year, Trump threatened to hike the tariffs across the board on all imports by 10 per cent, impose 60 per cent or higher tariffs on goods originating from China and restrict imports from Mexico by imposing heavy import duties. He called India a ‘tariff king’ and an ‘abuser of tariffs’ and promised to retaliate with India specific measures. He talked of 100 per cent tariffs on imports from countries that try to move away from using the US dollar in cross border trade and financial transactions. His election campaign focused on domestic issues such as higher grocery bills for average voters, nuisance of illegal migrants, decline of American industries and the plight of industrial workers but he also talked of quickly ending the hostilities in Ukraine and Gaza.   

Whether Trump will actually carry out his threats and if so in what measure and when, is difficult to say but he has left no one in any doubt that he considers any country that enjoys a trade surplus with the US as a predator taking undue advantage of his country. Last financial year, India’s merchandise exports to the US worth $77.5 billion were higher than imports of goods from the US worth $42.2 billion, giving India a bilateral trade surplus of $35.3 billion. So, India specific measures may come through hurting our exports although it is possible that any China specific actions may end up creating some opportunities for India. Under the Trump administration, our software professionals may face difficulties in getting visas for working in the US. 

Europe has relied heavily on the military alliance with the US for defending itself but with Trump’s rather isolationist policies, Europe may find it necessary to divert more resources for building better military capabilities. That could mean less money for other purposes, impacting its economic growth and cross border trade. About 23 per cent of India’s merchandise exports go to Europe. Trump may take a tough stand with the Houthis, who have disrupted the voyage of ships through the Red Sea. Trump could very well bring about restoration of normal shipping route via the Suez Canal bringing down the voyage time and ocean freight for movement of goods by sea between Asia and Europe. Overall, the coming years may see greater fragmentation of world trade and weakening of global institutions.   

Email : tncrajagopalan@gmail.com