Pragmatism over payback

Any sectoral costs of a US trade deal must be compared to the costs of not having a deal. External pragmatism coupled with internal reforms can yet turn this impasse into an opportunity

- SAJJID Z CHINOY

The global trading order has been upended more dramatically than even the sceptics had envisioned under Trump 2.0. A multilateral, rules-based system has been uprooted and replaced with coercive bilateral mercantilism. What's worse, tariffs have been weaponised for reasons far beyond trade. From fentanyl to judicial rulings in sovereign countries, to purchases of crude, to geopolitical proclivities - everything is now fair game.

The implication is a byzantine spaghetti bowl of tariffs imposed by the United States. Consequently, the US effective tariff rate is creeping up towards 18 per cent - levels last seen in the 1930s. But US equity markets continue their unabated march forward. Markets keep believing the President will pull back if economic outcomes become pernicious. In turn, the administration looks at buoyant markets, seeks comfort and keeps pushing ahead. Eventually something will have to give. Weak job numbers in the US in recent months may well be the canary in the coal mine. There's never a free lunch in economics. As the German economist Rudi Dornbusch once noted, "Things take longer to happen than you think they will, and then happen faster than you thought they could." Meanwhile, India is the latest country in the crosshairs. Tariffs have been doubled to 50 per cent.

Given the sectoral tariffs and exemptions, the effective tariff on Indian imports is 34 per cent, lower only than China (42 per cent). Given India's repeated efforts to seek a deal, the capriciousness of US policy has understandably elicited a strong reaction in India, with some commentators urging authorities to look the US in the eye, others proposing a boycott of US goods, and yet others suggesting India reciprocate with a 50 per cent tariff, thereby moving up the escalation ladder.