In a perverse way, countries need to thank China because it was its aggressive retaliation which caused Trump to see red and come out all guns blazing.“>
Mumbai: Donald Trump’s initial tariff blitzkrieg of April 2 has now narrowed down to a slugfest between the US and China which could have serious implications for the rest of the world.
The American President has pressed the pause button for 90 days on implementation of his draconian tariffs across every nook and corner of the planet while China continues to raise his hackles. The back and forth retaliatory announcements have now led to the US imposing a staggering 125per cent levy on Chinese imports. The latter has made its intent known with an equally aggressive 84per cent on American goods entering China.
The rest of the world has, meanwhile, heaved a sigh of relief on this intermission phase and stock markets have also rallied strongly as a result. In a perverse way, countries need to thank China because it was its aggressive retaliation which caused Trump to see red and come out all guns blazing.
India will also be grateful that it gets a reprieve for 90 days where it can use this time well to plot an alternative course of action. Top officials have already made it known that a bilateral trade agreement with the US is on the cards which could see a dramatic cut in import duty levels to 10-20per cent . Among India’s key exporters are pharmaceutical companies which will bleed with the 26per cent levy proposed by Trump.
Auto impact minimal
Automakers, however, have little to worry about since exports to the US are practically nothing to write home about with the exception of Tata Motors’ owned Jaguar Land Rover which has paused its American shipments from the UK for a month. India’s components industry will be more affected since there are companies which directly export to the US from here or from their overseas facilities in countries like Mexico.
From the American side, the auto exposure to India is a near write-off with brands like Ford and General Motors having exited already while Trump’s pet reference point, Harley-Davidson, had also packed up its bags. It is now in a partnership with Hero MotoCorp as part of a revival plan.
Ford has recently announced that it will restart operations at its now defunct Chennai plant but there is no telling if it will contemplate this in a hurry under an unpredictable Trump regime. Reports have been doing the rounds that the company will focus solely on the export market with engines or electric vehicles..nothing is official so fat,
It is not clear if Indian two-wheeler companies which are going global more aggressively will suffer a setback with the tariffs which will come into effect 90 days from now. Companies like Bajaj Auto and TVS are riding on international brands like KTM, Triumph and Norton where the US could be an attractive market. Royal Enfield, likewise, may also need to rework its plans for the US following Trump’s tariff fusillade.
New world order
The more important issue is how the world order has changed with the US and China clearly calling the shots in a tug-of-war where there will be no winners by the end of the day. How India aligns its priorities with other countries in this difficult situation and still manages to protect its interests remains the biggest challenge.
The harsh reality is that it is impossible for countries to decouple or disengage themselves from the global supply chain unless they want a bloodbath on their hands. The US by itself now remains vulnerable to a serious recession because it imports over $450 billion worth of goods from China while its exports are only a third as much.
Trump could be gloating over what he perceives as his victory but American consumers will be up against severe inflation which could knock their household budgets for a loop. Sure, this will affect Chinese buyers too who will have to pay more for their imports from the US but the impact will be a lot lesser given the quantum of American goods shipped into their country.
EU takes a break too
The EU had already indicated that it would go for a retaliatory measure on Trump’s tariff proclamation of April 2. It will also take a breather now in view of the latest developments where the boxing bout is essentially between the US and China. However, it is not as if this is a permanent break since Trump will resume his tirade three months from now when the grace period comes to an end.
India’s policymakers have already had meetings with their EU counterparts and discussions are underway on forging free trade agreements on a series of goods including automobiles. If everything goes according to plan, a script could be in place by the end of this calendar and India will have yet another critical passage for two-way trade sans tariffs.
Within industry circles, there is some scepticism on these FTAs actually becoming a reality because of “India’s inherent protectionist attitude” and one can only hope that this does not prevail doing the talks with the EU. A bilateral trade agreement with the US and an FTA with the EU will pave the way for smoother business from India’s point of view.
How will Russia’s role play out in this new arena? Moscow has viewed India as a friend and the latter has also benefited sourcing cheaper crude oil thanks to this relationship even during the war with Ukraine. With Trump now wooing Putin to his side, clearly for reasons of energy supplies and checkmating the EU and China in the process, it will be interesting to see where this leaves India.
Tightrope walk
Clever balancing of relations will play a big role and India may well manage to pull off this delicate tightrope walk where it can keep both the US and Russia happy along with the EU. From Trump’s side, China is his biggest adversary and India may not really matter at this point in time.
Meanwhile, China and India will also be walking on eggshells given that there has been no love lost between the two countries for five years now ever since the border clashes broke out. India was quick to counter China’s aggression by freezing investments from automakers like Great Wall Motors and Changan Automobiles.
Even companies like BYD, which have had operations here before relations between India and China took a nosedive, have not got their new investment proposals cleared. Yet, China remains a big trading partner for India and there is no way this can be snapped overnight. Amidst this hostility in relations is the reality of trade which cannot be disrupted.
China, in any case, is keen on making a point in this feud with the US that it is no pushover in today’s global arena. It is second to none when it comes to economies of scale across key sectors and has constantly been hitting the headlines for the remarkable strides it has made in electric vehicles. Its prowess in this field has in fact caused the EU and US to impose tariffs on China-made EVs even before Trump went on the rampage with his own levies.
China EVs unwelcome
India has, of course, made it categorical that it will not welcome these EVs on its roads because of its strained relationship with its neighbour. This has not stopped China from exploring new geographies in ASEAN, Latin America, Africa and parts of Europe where some governments have laid down the red carpet for setting up new plants.
Trump has made it amply clear that issues like clean emissions are not priorities right now which means the US will not see electric as an important objective for its automobile industry. Given the Chinese onslaught happening in this space, there will be greater reason to protect the interests of American carmakers.
As the new global order is set to see a dramatic change over the next three years with Trump at the helm, new relationships between countries will become inevitable. With his blow hot, blow cold attitude on tariffs, countries will be wary of the US President’s next moves. Whether this will compel them to get closer to China is the million dollar question.
As for India, its geographical position means that it finds itself between a rock and hard place. There was a time when it could keep China in check with its fellow QUAD members which included Japan, Australia and the US. With Donald Trump solely focused on his MAGA (Make America Great Again) mantra, India will have its work cut out in recasting its global trade template.
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