Heavy reliance on US forces govt to put up with Donald Trump's tantrums

Different countries have reacted differently to Trump's tantrums, but the global markets have remained reasonably steady, although nobody is sure of what he will do next

US President Donald Trump continues to keep the trading partners of his country on the edge. Last week, he did what he has been doing for the last few months i.e. take extreme steps, postpone the implementation after a while, and offer to negotiate, retract partially and then use threats to take extreme steps again. Different countries have reacted differently to his tantrums, but the global markets have remained reasonably steady, although nobody is sure of what he will do next.

 

Last week, just before expiry of the 90 days suspension of the reciprocal tariffs, he imposed on imports from many countries in April, Trump announced deferment of the measures till this month end and threatened increased tariffs ranging from 20 per cent to 40 per cent on imports from Japan, South Korea, Canada, Serbia, Bangladesh, Cambodia, Brunei, Thailand, Indonesia, South Africa, Malaysia, Laos, Myanmar, and Kazakhstan. Later, he threatened tariffs of 50 per cent on imports of copper, 35 per cent on imports from Canada, 50 per cent on imports from Brazil and 30 per cent on imports from the European Union and Mexico.

 

The leaders of the member countries of Brics, a loose grouping initially of Brazil, Russia, India, China and South Africa that later expanded to 11 countries, met last week at Rio de Janeiro, Brazil, where 10 more countries decided to join the grouping. Their joint declaration was as predictable as earlier but the mention of the member countries about trading in their own currencies was sufficient for Trump to dub Brics as ‘anti-American’ and threaten additional tariffs on the member countries of the grouping. The joint declaration at Brazil avoided any talk of developing a Brics currency, mooted last year, under the shadow of Trump’s threat of massive retaliation against any attempts to undermine the US dollar.

 

Our Prime Minister concluded a tour of Ghana, Brazil, Argentina, Trinidad, and Tobago and Namibia last week. Our exports to all these countries aggregate to less than $9 billion. There are no direct sailings to any of these countries.

 

Imports from India are insignificant for these countries. A trade delegation from India is due to visit the US to negotiate and conclude a trade deal before this month’s end. The trade talks that started in February are said to be at an advanced stage, with India’s reluctance to give in to the demands of the US for increased market access in agricultural and dairy products being the main hurdle.

 

Review of the free trade agreement with the member countries of the Association of South East Asian Nations (Asean) is also due later this month. With so much uncertainty in the global trading environment, many businesses are deferring their investment decisions. Trump’s bullying tactics have exposed our relatively weaker bargaining position. The failure to diversify our export markets, barring some companies in a limited number of products or services, and our reliance on the US for technology and investments is forcing our government to put up with some humiliating remarks by Trump and continue negotiating with the US.

India can avoid such situations by focusing on enhancing competitiveness but as pointed out by many analysts, the government is focused on protecting select large businesses.

 

Meanwhile, the importers are facing many tariff and non-tariff barriers that are imposing heavy costs. An honest review of our trade policy is overdue.