May India Navigate These Interesting Times

The old Chinese curse contains risks but also opportunity

- AJAY CHHIBBER

Donald Trump's trade tantrums have sent shockwaves throughout the global economy. He imposed a 10 per cent tariff across the board on all imports, and a steeper 25 per cent tariff on steel, aluminum, automobiles, and auto parts. He introduced his crude and senseless reciprocal tariff plan, but then announced a 90-day delay in its implementation to allow time for concluding bilateral trade deals.

He has singled out China with the heaviest tariffs of 145 per cent, expecting it would cave in quickly. But China has retaliated with 125 per cent tariffs on imports from the United States.

The US' major trading partners—Canada, Mexico, and the European Union (EU)—have said they will fight back against the US tariffs. His demeaning anti-Canada rhetoric has helped bring the Liberals back to power. Mr. Trump's tariff roller-coaster and threat to fire the Federal Reserve Jerome Powell have rattled equity markets—and more importantly, bond markets.

The President does not understand that the US' trade deficit is largely due to its exceedingly high fiscal deficits. Mr. Trump has now signaled that he is willing to back down on the ridiculously high tariffs on China, and has also promised not to fire the chair of the Federal Reserve.

"May you live in interesting times" is a Chinese curse—but within it also is a silver lining. The Chinese word for both risk and opportunity is the same, and the Chinese see both in these trade wars. China is now courting the European Union, India, and others, positioning itself as a responsible global power. But China also must share some of the blame for the trade standoff. After the Covid shock, it went back to an aggressive export-led recovery instead of rebalancing its economy towards more domestic consumption, exacerbating global trade imbalances. And if Mr. Trump backs down, China is likely to double down on its flawed export-led model, rather than attempt a much-needed economic rebalancing.