I messed up. Trump’s tariffs strain diplomacy
In my last column two weeks ago (or was that a lifetime ago?), I was quite certain that Trump’s “reciprocal tariffs” were a good things because countries, like India, that charged high tariffs on products from the US and other countries would quickly drop their rates. Trump and America would have an easy win and I, as a US citizen of Indian origin, would be happy for both sides. This would lead to a win-win for all.
Boy, was I wrong!
Elon Musk, had also said that zero tariffs between the US and EU would be desirable. However, that is not what his boss is doing.
Otherwise, he would not have imposed tariffs against countries that are basically considered fair players—like Australia, which even has a free trade agreement with the US. Clearly, the American tariffs are neither reciprocal, nor sensible nor legal.
India is still working behind the scenes, but Vietnam was one of the first countries to publicly offer to drop its tariffs to Zero. It did so with the reasonable expectation that the reciprocal US tariff would also drop to Zero. In response, however, Trump acolyte Peter Navarro moved the goal posts, raised new, non-tariff issues and accusing Vietnam of “cheating”.Trump’s tariffs strain diplomacy
So, this gives rise to the question: does anyone in this US government have a clue? Turning tariffs off and on like a spigot is not policy. It is a knee-jerk response by someone who not only does not know what they are doing, but does not even know who its friends and enemies are. Along with Australia, with which the US has a USD 200 million surplus, the Netherlands ($5B), UK ($2.3B), Saudi Arabia ($0.4B) and Belgium ($0.3B) are all facing a 10% tariff!
How to make enemies and alienate people. Furthermore, thanks to this and other political factors, Greenland is now cozying up to China (wouldn’t you, if your close friend walked in to your home without permission and insulted you?). The EU (perhaps America’s most powerful ally) is now clearly charting its own path. If this continues, Trump will have perhaps single-handedly surrendered in the new Cold War with China, even before it got started.
In contrast, many countries are working in a wise and restrained manner, without replying to each insult. India is currently working with the EU, UK, New Zealand and Australia towards free trade agreements. What this means is that in the short term, countries will jump to do whatever the US asks, because it is so powerful. Where there is a leadership vacuum, however, it will be filled.
Can China step in? In the medium and long term, however, countries may well see China as a balancing partner. This was already seen in the 10-year bond curve which jumped over 50 basis points since April 2. What this means in financial terms is that the US is no longer seen as a “safe haven” when other countries demonstrate risk. Instead, the US itself has become a source of risk
In contrast to other countries supposedly kissing Trump’s ass (his own words), China’s Xi Jinping has ignored back-channel requests to call Trump. Instead, it has tried (so far, without too much success) to get closer to India, South Korea, Japan, and other countries but the Communist dictatorship’s own history of capricious behavior (buzzing planes over Taiwan, claiming the entire South China Sea for itself, arbitrarily snatching tiny slivers of land from India, etc.) makes it an unlikely immediate successor. That said, China also has a long history of putting its money where its mouth is, and it has expertly taken control of small tracts of land like the Hambantota Port in Sri Lanka. By taking over key areas, China gets all of the benefits and none of the liabilities of direct occupation. (If Trump had really been smart, he would have quietly negotiated for more bases in Greenland instead of insulting his allies).
Thus, while China will not replace the United States, it will gain significant additional heft. The speculative BRICS currency may never come into being, but the Yuan alone will become another counterweight to the US dollar. As the world’s confidence in America gets shaken each passing day, China gains corresponding strength.
Where is India in this? It will gain, but only incrementally. India’s competition right now is more likely to be Vietnam rather than China. Trump’s tariffs strain diplomacy
What the future holds for Trump: even the venerable Wall Street Journal has made a statement on its famously conservative Opinion columns: if Trump continues to flout the Constitution on basic issues like due process and free expression, he is subject to impeachment (again). The problem is that even if that happens, the damage will have been done—and the whole world will be the loser.
READ MORE: Mapping the uncharted: Less-explored angles on Trump, Ukraine and WW3
