For India, there is a bigger worry than US tariffs

On April 2, US President Trump announced the highest, most irrational import tariffs since 1910, declaring this was America’s ‘Liberation Day�? It would be better to call it Recession Day. Or Trade War Day. Or Economic Stupidity Day.He announced a flat 10% tax on all imports. In addition, in 60 countries he imposed a supposed ‘reciprocal tax�?ranging from 10% to 50%. He released a chart labelled ‘Tariffs Charged to the U.S.A. Including Currency Manipulation and Trade Barriers�? exhibiting the unfair practices of trading partners. Analysts had expected some sophisticated form of calculating reciprocity, but it turned out to follow a formula that would make even an economics undergraduate snigger. The supposed reciprocal tax was calculated as 50% of the US trade deficit with a country, divided by US imports from that country. This was not reciprocal at all. The formula implied that any US trade deficit with any country represented cheating and unfair trade of that country. Economist Larry Summers declared that the Trump formula was to economics what creationism was to evolutionary science, astrology was to astronomy, and RFK Jr (the new health secretary) is to vaccine science. medium nocaptionhttp://www.youtube.com/watch?v=qPoWR7lI_7gEvery country has trade deficits with some countries and surpluses with others. Only ignoramuses view exactly balanced bilateral trade as the norm and trade deficits as cheating.Trump’s formula imposes a 26% tax on imports from India. This is less than on Asian competitors like China (54%), Cambodia (49%), Laos (48%), Vietnam (46%), Indonesia (32%), Bangladesh (37%) and Sri Lanka (44%). The inanity of the formula is exemplified by its 10% tax on the Heard and McDonald Islands off Antarctica which have no human habitants, only penguins. The penguins are unlikely to pay the tax, On the other hand, Trump can be happy they will not retaliate.Some Indian analysts are eternal optimists, delighted that India has not fared as badly as others. This is like welcoming a salary cut because it is less than the cut imposed on colleagues. !function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r,i=0;r=e[i];i++)if(r.contentWindow===a.source){var d=a.data["datawrapper-height"][t]+"px";r.style.height=d}}}))}(); Too many media analysts are focusing on the impact of Trump’s tariffs on this or that Indian export. The main impact on India will not be US tariffs. It will be the coming recession caused by Trump’s actions. That will depress the GDP of all countries, including the US and India.Trump is prepared for that �?he says there will be some pain before the US bounces back to become a great manufacturing nation again. Baloney. India has a resilient economy that will survive a US recession. But if GDP slows by say 1.5%, the loss of income will be Rs 5 trillion, vastly exceeding any damage from US tariffs.Worse, Trump’s logic and actions are not just about tariffs. He seeks to destroy the global economic order created by the US after World War 2, which ushered in the greatest economic spurt in world history. Countries galore became high-income countries, and more than one billion people were lifted out of poverty in India and China alone.The US remained the top economy in this period. The world’s seven biggest companies by market value (Apple, Nvidia, Meta, Google, Microsoft, Amazon, Netflix, and Tesla) are all American. The dollar is the world’s reserve currency, so the US has the ‘exorbitant privilege�?of running as high a trade deficit as it likes without worrying about the consequences. It has long been the fastest growing OECD country, with very low unemployment of barely 4%. !function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r Ignoring all this, Trump claims this US-driven system is terrible. “For decades, our country has been looted, pillaged, raped and plundered by nations near and far, both friend and foe alike.�?He gives no data to support this fantasy.He was elected in reaction to inflation during Joe Biden’s presidency. But high import duties will inevitably worsen inflation and Trump’s popularity. The Democrats are delighted to see Trump committing economic suicide.Trade wars have begun. China has retaliated with a 34% tariff on imports from the US and curbs on rare earth exports. Canada has imposed a 25% tax on cars imported from the US. The EU claims to be readying a retaliatory package although its members are split on this. Others like India and Mexico are trying to placate Trump. The trade wars will worsen the coming recession. Denied entry into the US, China will flood the rest of the world with cheap imports, causing barriers to go up everywhere.Trump thinks ‘Liberation Day�?will be a turning point in US history that ensures his immortality. Really? To cite economist John Kenneth Galbraith, “When all else fails, immortality can be assured through spectacular error.�?That may well be Trump’s epitaph.Lead illustration: Uday Deb