Five unfounded fears of 2025 since tariffs were imposed

In last 3 months, since the 50% tariff was invoked, export growth has been positive, meaning exporters have done well to counter tariffs

- MADAN SABNAVIS

The year 2025 started off on a shocking note with the economic war being evoked by the US President in the form of tariffs. It is this theme which has cast a shadow on the world economy, warring nations, central banks and governments, as all policies have paid obeisance to this major disruption. This disruption was as potent as Covid and was a once-in-a-lifetime shock, administered by the most powerful nation in the world.

The president delivered on what he had threatened as higher tariffs were announced in April, which set a base of 10% that was much higher than the average of 3-4% average tariff that was prevalent all this time. This had led to several analyses of how things would pan out at the global as well as domestic levels. The tariffs were invoked from August onwards, and almost 5 months have passed, which makes a reality check relevant.

First, at a purely theoretical level, one nation imposing tariffs on the rest of the world should have logically led to countervailing tariffs being imposed by the other countries. In classic game theory, such policies are pursued so that there is collaboration subsequently and an optimal solution is reached. However, this was not evident in most cases. Almost all countries went back to the table to strike deals with the USA. This involved lower tariffs for US imports as well as a promise to invest more in America. Hence, Canada, the European Union, England, South Korea, and Japan, among others, had deals. This was a victory for the USA, as it got most trading partners to lower their tariffs on imports. This is not something the WTO was able to do.