Updated: Dec 15, 2020
In 2016, during the presidential election in the United States, the speculation of uncertainty and disruption in economic policies, trade relations, and global markets were very evident. And, it is believed by the scholars of the field that 'uncertainty is dangerous for the economy'. These scenarios were the consequence of the presidential campaign of Donald Trump which focused on his bold retrospective and 'America First' vision. After 2016, the Trump Administration opened all gates of uncertainty as predicted but unwarranted altogether. US-China Trade war, US-Euro Re-negotiations, retrieval from Trans-Pacific-Partnership against US-Mexico-Canada Act and immigration ban on seven Muslims countries with Mexico crisis in neighborhood were some of the most impactful issues among others. With the Trump administration in power there are chances for bipolar economic participation and protectionism, and it is pertinent to mention that both of the situations are against global interconnectedness and interdependent nature of present sustainable world which further have long term consequences.
Now, if we start introspecting how the Trump administration has managed and what offered to other economies we will be left with escalated bilateral tensions and trade wars. Trump's aspirations to make 'America Great Again' seem to be a distant dream because of his own captivating policies, unnecessary hike in tariffs and coercive attitude. Rationale attributed behind the explanation that comes for such actions or 'policy dilemmas' on administrative levels are trade deficits that the US was subjected to for a long time, currency manipulation and intellectual property theft, particularly from China.
Focusing on the US-China relationship in the past few years after the arrival of Trump at the center stage has been shaky and with knockouts. US-China economic participation in bilateral terms in the past decade contributes a major share of trades in the world. However, due to recent developments, prominently due to the policy changes that Washington rolled out, everything does not look like to be able to fit in properly in a single frame. The Trump administration directly went with tariffs and trade war against its biggest competitor in the market. Three rounds of tariff hikes were sanctioned in 2018 on imports from China and the fourth tariff hike was sanctioned in September 2019, which aimed at boosting consumer demand in America for American products by raising the cost output of the imported Chinese goods. It was termed as essential for 'American interest' and 'consumer welfare'. China retaliated by imposing tariffs on American goods imported in China. A 10-25% hike in tariffs have the tendency to significantly impact the functioning of any business. Total tariffs imposed by America and China today stands at approximately $550 billion and $185 billion respectively. Mismatched numbers are due to trade deficits and non-diplomatic sympathy for the other. For this, China warned America for "qualitative" measures against American firms functioning in China. This makes me remember of Mike Pommy, Secretary of State, United States, statement that China is persistently involved in 'predatory economics 101'. With 'phase one' negotiation between the United States and China in January 2020, there were exemptions from both the sides and Chinese government agreed to boost US import by $200 billion and also to strengthen intellectual property rules to acknowledge the US's problem. This is going to be a new normal for the Trump administration to convey intentions and claims in business. Hong Kong is also subjected to label every product 'made in China' on products imported in the US so that it can be subjected to additional tariffs.
The story of India-US, with respect to trade relations and bilateral coherence is not so different. As military relations and security cooperation between India-US under Modi-Trump tenure has witnessed new developments and strategic partnership, that it looks like for the future, the story of economics is in the helter-skelter. In 2018, Washington imposed 10-25% tariffs on steel and aluminum imports from India, initiating the tariff war, by invoking Section 232 of Trade Expansion Act, 1922, claiming that importing steel and aluminum has 'impaired national security' and also by terminating the GPS status of India which benefited India for around $5.58 billion on exports due to free duty tax. India in response, imposed duty on 28 US goods which was up to 120% on some products. So, in this case the script is the same with a replaced co-star. America's experience under the Trump administration is in direct confrontation with the usual American economic story of liberalism and the free market.
Trump's retaliation was very shocking and unfounded for the European nations. “The European Union has ripped this country off so much, it’s unbelievable, and it’s so easy to solve,” Trump said. “If they don’t change, we’re going to put a tariff on their cars until they change. And they’ll change right away." As said, it's a 'new normal' developing for global financial markets. More conservative Post-Cold war era has witnessed the US taking the lead in sustaining global economic order, developing financial institutions, strengthening trade relations and advocating free market economy that was ever witnessed in human history. However, things are unfolding rapidly under the Trump Administration. From banning immigration from seven Muslim countries to revising H-1B Visa regulations. Legal battles in the World Trade Organization to 2000 miles long wall against Mexico. Such adventures do have a potential for a full-fledged trade war which will have capabilities to affect the economic condition of the world.
The Trump administration with its unpredictable enactment of policies, as mentioned above, is a dangerous path to choose in the complex macroeconomic structure of world trade. As witnessed, negotiations between the United States and European Union (EU) on tariff hikes do not look to provide any solution soon keeping Covid-19 crisis and its economic repercussions in mind. This shift to protectionism and conservative market economy where there is a minimum role to play on multilateral terms, is more prone to economic crises. For example, Washington's retrieval from Trans Pacific Partnership (TPP) which involves Japan, Chile, Vietnam, Mexico, Singapore, Canada, Malaysia and others to replace it with NAFTA deal or US-Mexico-Canada Act (USMCA) is raising concerns from multi-polar-connected economic participation. In a current scenario where inward looking or economic self-dependence initiatives and policies are very well known, for example, 'Make in India', 'America First', 'China 2025' and so on. We must consider and carefully examine the institutional manipulation and degradation. International economic institutions like WTO & IMF. are meant to regulate international economic affairs and provide financial assistance in times of crisis. Unnecessary damage to these institutions is a major setback for the Trump administration. The world post COVID will restart its economic activities with full capacity and then we will be confronted with the situation where the US has to decide whether it will continue to hatch uncertainty in the market or go with better solutions of mutual interest. Results from past few year’s experiences in trade and profitability is not even unprecedented for the Trump administration though it is more of a satisfactory pleasure to prove dominance. However, as US presidential elections are approaching, we can expect to see more uncertainty and fluctuations in the world economy.