Global Trade Uncertainties and India's Growth

The global economy is rattled with imposition of tariff on all US imports by Trump administration, signalling the end of decades-long era of trade liberalization.

- Sujit Kumar

The trade protectionism moves from the US are seemingly aimed at achieving lower trade deficit by making imports costlier and thus relocating manufacturing onshore; reverse dollar strengthening that puts US exporters relatively at disadvantage and, to raise government revenues to reduce public debt. These objectives, seemingly innocuous from US point of view, are at a conflict from economics perspective. These are unlikely to be achieved concurrently especially with output losses likely to undermine non-tariff revenues, price pressures leading lower rate cuts from the US Fed and rise in uncertainties making investors take safety in dollar assets, thereby ending up strengthening USD.

Expectedly, the Trump's tariff has sparked condemnation with threats of retaliatory countermeasures from China and the European Union, potentially escalating into a full-blown trade war. With imposition of 26 per cent tariff on India, 34 per cent on China, 46 per cent on Vietnam, and 20 per cent on the EU, among others, the repercussions of trade weaponisation could be far-reaching, spilling into competitive currency devaluations and further geo-political conflicts.