Donald Trump's belligerence will help China's image as reliable partner

Last Monday, US President Donald Trump suspended for a month, the 25 per cent extra import duties on goods from Mexico and Canada that he had imposed two days earlier. The stock markets that had reacted adversely to the hefty levy, normalised after the pause because the possibilities for talks on restricting illegal immigrants and drugs coming into the US from its neighbours and calibrating the tariffs had opened up. However, the 10 per cent additional tariffs on goods from China imposed by Trump on February 1 continue. China has retaliated with tariffs on goods from the US and also filed a complaint with the World Trade Organisation. 

 

Trump has threatened to increase the import duties on goods from Taiwan, Europe and India. While the European Union has indicated that it will retaliate by imposing duties on imports from the US, India is preparing to find a way to placate Trump during the visit of Prime Minister Modi to the US this week and Taiwan has talked of a win-win situation for both in semiconductor business.

 

Trump has also mounted offensives against the multilateral agencies. On the day he began his second tenure, Trump ordered withdrawal of his country from the Paris agreement on climate change and the World Health Organisation. 

 

Last week, he ordered the shutdown of the United States Agency for International Development and threatened withdrawal of the United States from the United Nations Human Rights Council and prohibition of funding for the United Nations Relief and Works Agency for Palestine Refugees, known as UNRWA. He has also talked of taking over Panama Canal, Canada, Greenland and Gaza.

 

Trump’s ‘America First’ policy is founded on the belief that all countries and international institutions are taking undue advantage of the United States. His way of dealing with such perceptions is to impose higher tariffs on goods from other countries and weaken the multilateral institutions. His belief will be further fortified by the data that came in on Wednesday to show that the US trade deficit widened to $1.2 trillion in 2024. So, he is more likely to keep using tariff as a weapon causing more uncertainties and turbulence in the markets. 

 

Economists say that Trump’s tariff hikes will hurt the United States more. Trump has also warned his people of the pain ahead and said ‘it would be worth the price’.

 

Indian businesses are hopeful that our Prime Minister will be able to dispel any misgivings of Trump and avoid any India-specific tariffs. However, they may be more affected by the fluctuations in the exchange rates. Whenever there are uncertainties, the global investors move their funds to the United States, strengthening the US dollar. On Thursday, the rupee ended at 87.57 to a US dollar. That can help the exporters get more money but imports will cost more, having an effect on inflation.

 

Trump’s belligerence is more likely to erode the confidence of other countries of getting fair treatment from the US. All multilateral institutions have to get prepared for withdrawal of financial and other support from the US. That opens up possibilities for China to project itself as a more reliable partner in development and increase its influence, especially among the multilateral institutions and poorer countries in Asia, Africa and Latin America. That should worry India. 

email: tncrajagopalan@gmail.com