Trump’s Impact on Global Economy
– N K Tripathi
World is still figuring out Donald Trump‘s resounding victory in US presidential election. His first tenure and his recent venting have given disturbing signals to the entire world. He had openly championed his protectionist policies of raising tariffs to minimise imports into US. Trump has announced that on Day 1 in his office, he will impose 30% tariffs on all goods coming from Mexico and Canada. The tariffs on China will be 40%. For the rest of the world 10% tariffs will be levied on all imports coming into US. He has threatened China and especially its cars with still higher punitive tariffs.
The objectives of Trump in raising import tariffs are to reduce imports and thereby provide protection to local manufacturers to grow and expand in the domestic markets. This will provide extra jobs to the Americans. Along with this, throwing out Illegal immigrants will further provide jobs to the Americans. However, domestic consumers will be deprived of cheaper foreign goods. Local producers will have a field day to sell at higher prices. Trump can do what he says because he will not be checked by the Congress or the Supreme Court.
There are serious implications in Trump’s policy for the US and the world. Americans will be compelled to buy more expensive local goods resulting in inflation. If Trump succeed in throwing out sizeable number of illegal immigrants, it will create labour shortage. This will further increase the inflation. Trump has promised Tax relief to Americans which will create more fiscal deficit in the budget, again, leading to inflation.
The Fed, like our RBI, will be compelled to enhance the bank interest rates. All central banks do it to minimise liquidity (loan funds) in the market to check the inflation. But enhanced bank rates will move the investors to pull out their money from the world stock markets and invest in US treasuries. This will weaken the currencies of other countries and strengthen the dollar. Ironically, strong dollar will also harm US as it will shrink its exports.
The increased import tariffs of US will compel other countries to increase their tariffs. This is called Trade War. Reduction in imports by all the countries will also mean reduced export of all. This will force the producers of the world to reduce their production. This will lead to fall in growth, which is Depression. The high protectionist tariffs, Trade War, and slower world growth will be nothing less than cataclysmic for the world. US will also feel pain towards the end of the Trump’s regime, though to a lesser degree because of its very strong economy. Trump will succeed in the beginning, but end with disappointment for the people of US. World will be safer if Trump is not able to fully implement his policies.
Trump will solidly back India militarily and strategically against China. But he will hurt India in trade. However, India should not enhance its import tariffs in retaliation. India should show its resilience in economy as it has done in the past on several occasions.
