US President Donald Trump is acting with great haste. Steep tariffs on its close trade partners have been announced. His Secretary of State is in Panama to discuss the Panama Canal issue. PM Netanyahu is summoned to the White House.
Elon Musk has got access to Treasury department’s data to start downsizing the government. Changes in the Justice department, intelligence agencies and FBI have been made. There is a rapid shake up within the US government and in global trade in less than 15 days of Trump taking over the Presidency.
Trump’s victory prior to the US elections in November 2024 was a little unexpected. After the victory, speculation about what he would do on taking over the Presidency of the US worried the world. After his victory speech and flurry of executive orders starting day 1, there was global consternation. The world has had its growing problems but Trump’s actions are spelling chaos.
Trump is able to do all this so rapidly due to his confidence that he can bully everyone since he has a majority in the legislature and the Supreme Court (trifecta). But, it is not that there was a Trump wave in the USA, as argued earlier by this author in November last year. He got only one million more votes than in 2020, even though the ‘eligible voters’ increased by 5 million.
So, a pushback against some of his contentious policies is not only possible but has started in the USA. There is talk of Californians contemplating secession from the USA.
At the international level, the trade partners have retaliated with their own tariffs on import of US goods, thus heralding a devastating trade war. Who will blink? It appears that Mexico has worked out some compromise for the time being. This will put pressure on Canada to also work out a compromise. Will Trump’s bullying succeed due to USA’s enormous economic and military power? Is he going to divide the nations and deal with them singly?
Trump’s statements and actions have often been on false premises. For instance, he had repeatedly stated during the election campaign that the economy was in bad shape. Not true. The US economy had recovered from COVID, there is labour shortage in the USA, steady growth and low inflation. He announced that USA will regain its sovereignty. If anything, it is the USA that has truncated other nations’ sovereignty. He has already arm twisted Colombo and is threatening to take Greenland and Panama Canal.
A recipe for global slowdown
USA, plagued by labour shortages needs more workers but migrant workers are being deported. This would impact production, especially in agriculture and services sectors and thereby spur inflation – contrary to the poll promise. BRICS nations are being threatened with 100% tariff if they consider using their own currency for trade. But, the trigger for this is the US sanctions on other nations and confiscation of their reserves.
Trump’s imposition of high tariff on imports from Mexico and Canada which are a part of the USA’s supply chain would aggravate inflation. Even if imports from other nations increase, it will be at a higher price. US partners imposing retaliatory tariff on US goods would impact US industry and lead to a slowdown in the US – a recipe for global slowdown.
Dollarisation of the world economy enables the USA to get trillions of dollars of interest free loan, have large budget and trade deficits and obtain imports cheaply. This enables the USA to live beyond its means and prosper. It suffered the least during the global crises whether during 2007-09 or 2020-22.
It provides the USA a leverage over other countries that is used to extract economic and political concessions from them and truncate their sovereignty. Mr. Trump wants to enhance these advantages. But pushed hard, other nations would resist resulting in rising deglobalisation.
Also Read: Making Sense of the MAGA Man
Trump has highlighted extreme weather events in Los Angles and North Carolina but given the call, ‘drill, baby, drill’, encouraging increased production and use of fossil fuels instead of renewable energy. He is a climate change denier and has again announced withdrawal from the Paris Convention. Climate change is not a local phenomenon; it endangers the entire world, including the USA. Further, he is talking of cutting back or closing Federal Emergency Management Agency (FEMA) thereby increasing citizen’s vulnerability to disasters.
Trump has been arguing that he would collect more taxes from foreigners so that he would be able to cut taxes on US businesses. He has repudiated the OECD agreement on minimum corporate tax of 15% and threatened other nations if they levy a 15% tax on US companies. He has said at Davos, either you manufacture in the US or face high tariffs. Either way, costs would rise, production would decline and inflation kick-up.
Many of the issues raised by Trump require a global consensus but he has decided to go it alone to ‘Make America Great Again’ (MAGA). He wants global economic structures that were anyway beneficial to the USA to be reworked to derive further gains.
Upending the world order
Trump projects as if the world has been unfair to the USA while the reality is that it has gained the maximum due to its domination of the world order and setting of the rules of the game. It is another matter that the gains largely accrued to the USA elite, especially in the field of technology and finance.
But for political expediency, he has been blaming migrants and other countries for the decline in the economic status of blue collar workers. This way he made himself their champion by raising the slogan ‘Make America Great Again’.
He promised the start of the golden period for the USA by extracting concessions from others – the Europeans, Chinese, Mexicans, Canadians and Indians. But what he glosses over is that the USA had come to agreements with these and other nations on the basis of its own self-interest whether in NATO or WTO, etc. This led to USA’s political and economic global domination.
Also Read: Trump Card (2.0): The Tariff Games and Global Economic (Dis)Order
In other words, Trump does not see the enormous advantage the USA has derived from the present world order. True that nations, like, China and India also benefited from globalisation but he wants to stall that so that the USA benefits exclusively. Further, his territorial ambitions would go against global consensus.
So, would other countries act in a concerted manner? Would they be able to take a joint stand?
In an earlier era there was the Soviet Union that provided an alternative which checked US’s power. China is not in that league as yet. BRICS needs to get its act together but is not quite there. India has not yet faced increased tariffs but in the budget presented on February 1 it has cut tariffs on certain imports thereby signaling its intent to the USA.
Will all these developments upend the settled global order, currently dominated by the USA? Conflict and contestation would grow so that without the USA gaining, everyone will lose.
For India, tariff war will mean higher imported inflation, slowdown in growth as exports get affected, BOP difficulties building up, decline in foreign exchange reserves, decline in the value of rupee against dollar, outflow of foreign capital, decline in the stock market valuations, etc. Thus, the current difficulties regarding growth, inflation and unemployment will aggravate.
Trump’s actions will further marginalise the marginals globally
President Trump has a pro-business short run segmented view of the world, bereft of the historical and the long term societal dynamics. Consequently, it is replete with contradictions which will result in considerable internal pushback to many of his proposed programmes in spite of the trifecta.
Several States of the USA have already gone to Court. Those in the government being laid off summarily could go to the Courts. Other countries would also resist to protect their interests thereby upsetting the global structures which were advantageous to the USA.
So, his actions will disrupt much which will further marginalise the marginals globally. Climate change will impact the marginalised the most. The pro-business policies will increase the already high inequalities. Prices will rise due to disruption in supplies resulting from a tariff war globally. Even if the tariff war abates due to pressures from the USA on other nations to buy more from it, prices will rise.
Public services will deteriorate due to shortage of resources with governments, as taxes on the wealthy are cut. So, contrary to Trump’s promises, USA will face a slowdown in economic growth and rising unemployment. And so will the world.
Given the push back and the consequences, Trump is unlikely to be able to fulfill his agenda in the f0ur years he has. So, for the US citizens MAGA would turn out to be a failed slogan.
Arun Kumar is author of Indian Economy Since Independence: Persisting Colonial Disruption.
