Be prepared: Integrated strategy a must for handling global uncertainty

Well into Donald Trump’s second year as US president, oft-expressed worries about his isolationist administration’s impact on world trade are finally being realised. The past fortnight has seen a flurry of action on the trade front. Mr Trump, months ago, indicated that he intended to raise tariffs on steel and aluminium being imported into the US. Not that these are being put in place, the US’s trading partners are informing the World Trade Organization of the retaliatory tariffs that they intend to impose. Many of these target US agricultural exports. Some are narrowly focused on states that are important to Republican leaders in the US Congress. India has also announced retaliatory tariffs on several imports from the US, such as nuts, apples, and motorcycles. It is worth noting that, so far, most of the retaliatory tariffs that have been declared by various countries are strictly proportional. They hit the value of US exports about as much as the tariffs Mr Trump has already announced. It is uncertain whether this will embolden or calm Mr Trump’s anti-trade fury.

The world economy is thus entering a deeply destabilising period. It is far from clear what the pattern of world trade, including in services, will be once this tariff dynamic has played itself out. The final “real” value of currencies is also uncertain, given not just changes to trade but vast changes to capital flows being driven by reviving US growth, US federal government borrowing, and the stance of the United States Federal Reserve. Companies that are globally integrated, including those in India, will have to re-examine and re-optimise their operations. So far, the US has behaved towards the geo-economic order in the manner of a rule-setting hegemon. If it now intends to distort and disobey the rules that it itself helped put in place, the ramifications will be manifold — and not, in fact, limited to the global economy but to the strategic alliances that have underpinned that hegemonic order.

The deepest concern, for Indians, must be that the government in New Delhi does not seem to have the resources to come up with an integrated and holistic response to these changes. Many are asking: Who in the Indian establishment is mapping these rapid changes? And is there a cogent view on how to navigate these times? India is far below its potential growth trend-line, as the prime minister himself has recently pointed out in his exhortation to aim for double-digit growth. Thus, it has more to lose from a responsive and passive strategy than most countries in the world. India cannot wait to be engaged by others; it needs to be pro-active in defining the new rules of international economic and strategic engagement. In this endeavour, it is unfortunate that while the government seems to be short of capacity, even the private sector seems unwilling to engage. The 1990s and 2000s were marked by an activist Indian private sector, organised through its chambers of commerce, that pushed for greater openness to the world and closeness to America. The nuclear deal was the apex of these efforts. Another such re-configuration of the Indian global stance, led by the combined actions of the government and the private sector, is needed today.