Trump’s tantrums, ostensibly over America’s trade deficit, have seriously damaged the global trade system built over decades. We also need to consider the geopolitical impact of Trump’s second coming.
The tariff tantrums should be seen in the context of his wild and bizarre projects—to take back the Panama Canal, acquire Greenland, by force, if necessary, absorb Canada as the fifty-first state, and evict the Palestinians from Gaza to build a ‘Riviera’ there.
Patently, the U.S. has emerged as an unreliable partner that finds it difficult to abide by the norms of dignified behaviour expected of it by the rest of the world. It is almost an elephant running amok.
We shall focus on the trade war that Trump enthusiastically started. Let us critically examine the merits and demerits of his claims and deeds.
Incorrect Claims
Trump has claimed that the trade deficit in 2024 was $1.2 trillion. He is wrong. To get a holistic estimate, it is necessary to add the surplus in services trade and the export of arms. Adding the surplus in services, $282 billion, and arms exports, $318 billion, the deficit comes down to $600 billion.
We also need to note the advantage the United States gets from its position as the central bank for the whole world, an advantage that is rather difficult to quantify.
In short, the actual deficit is less than half of what Trump has claimed.
Incorrect History
Trump asserted in his choreographed 2nd April speech that the federal income tax was introduced in 1913 to replace the revenue lost by reduction in tariffs. Again, he is wrong.
The Democrats won the 1912 election, and the following year, Congress reduced the import duties from 44 per cent to 25 per cent. However, World War 1, which broke out in 1914, prevented follow-up action. Incidentally, the federal income tax was first introduced in 1862 to finance the Civil War, which lasted from 1861 to 1865.
Trump’s Strategy Is Wrong
By chasing the mirage of equal trade in goods with each trading partner, Trump wants to reach zero by adding zero sixty-five times. It is possible to get zero or near that by adding positive and negative numbers. For instance, if Lesotho cannot afford to buy what America produces, it follows that there cannot be a zero balance unless America stops importing from that country.
Trump is atavistic when he insists on balanced trade. Mercantilism predated modern economics, founded by Adam Smith, whose monumental work An Inquiry into the Nature and Causes of the Wealth of Nations was published in 1776 when America declared independence.
Is pursuing such an outdated philosophy the best way to Make America Great Again? At this rate, unless course correction is applied, Trump will Make America Diminished Again MADA (MADA). Further, he will accelerate his journey to his Waterloo in the mid-term elections to Congress.
The Response Of The Row
The rest of the world has reacted with a mixture of pusillanimity at first—and slowly rising resilience. The reaction of China, the EU, Mexico, and Canada matters. The rest will benefit from the resistance, if any, put up by these four.
With its ability to avoid knee-jerk reactions, China initially asked Trump to reverse the tariff increases and negotiate. Trump, riding the high horse, refused. In a tit-for-tat, Trump has imposed 145 per cent on China, which has imposed 125 per cent on America. China hit back. China sold goods worth $438.9 billion and bought goods worth $143 billion in 2024. If Trump calculated that the Middle Kingdom would have surrendered with alacrity, he was wrong.
China has been redirecting its exports since Trump, in his first term, increased tariffs against it, which Biden did not revoke. This is mainly because there is a bipartisan consensus in America that a rising China alone can contest America’s hegemonic position.
China has responded with a degree of caution as it has imposed only a 125 per cent tariff on America, which is against the 145 per cent imposed on it. Apart from quantity, there are other aspects. China is the biggest buyer of soybeans produced by states that generally support the Republicans.
Moreover, China sells everyday necessities such as clothes and cell phones. The US importer will pay the duty, though the Chinese exporter might or might not reduce the price.
In any case, no ‘external revenue’ is generated, as Trump had claimed. He even spoke of establishing an External Revenue Service, which had not been mentioned for a while.
Trump claimed that $2 billion a day has started pouring in. Once again, he is wrong. The BBC did some fact-checking and figured out that if the average tariff of 22 per cent were applied to all imports, $2 billion could have been the daily revenue.
Wishful thinking cannot be part of good policy.
The European Union faced a dilemma. First, the EU members have different and conflicting interests. For example, France and Italy do not want to provoke Trump by raising tariffs on bourbon whiskey. Confronted by signals that bourbon might be targeted, Trump threatened to charge 200 per cent on wines and spirits from the EU, and Paris and Rome were frightened.
Finally, after repeating ad nauseum that it preferred negotiations, Brussels declared that it would impose a retaliatory tariff of 25 per cent on goods worth $23 billion from the U.S. that will come into force next week.
Trump announced a 90-day pause on ‘reciprocal tariffs’ on 9th April, and Brussels, too, declared a similar pause with noticeable alacrity.
Why did Trump announce that the pause applies to all except China? His Treasury Secretary Bessent explained that Trump wanted to expand the negotiating space. He may be right in part.
It is generally held that Trump was compelled to ‘pause’ as his billionaire friends and supporters lost heavily in the stock market. In 48 hours after the Day of Liberation, the loss was $6 trillion. The interest on US treasury bonds surged to 4.5 per cent.
India
New Delhi counted on the ‘personal chemistry’ between Modi and Trump and had hoped to be given special consideration. It assumed that by initiating talks on BTA (Bilateral Trade Agreement), India would earn an exemption.
The Commerce Ministry woke up rather late and strengthened its section dealing with North America only recently. At the same time, New Delhi was correct in assessing the correlation of forces and refraining from announcing counter-tariffs.
We do not know whether New Delhi would have used its clout as a big arms buyer from the MICC(Military-Industrial-Congressional Complex), of which Trump is the most devoted salesman. If it has, it has acted wisely by not sharing that with the media.
The BTA is likely to be signed when Trump comes to India for the QUAD summit, dates for which are yet to be decided. America will seek to drive a hard bargain and attempt to make India sign on the dotted line. New Delhi will and should resist.
What Next?
The Middle Kingdom will be in no hurry to yield, and Trump will be compelled to meet it halfway. He is also capable of striking a grand bargain with Xi Jinping and inaugurating a bipolar era, but even if he does, it won’t survive his presidency.
Trump has been hard on Canada and relatively soft on Mexico. If he has only China to fight with, he might be able to make Canada sign on the dotted line as far as trade is concerned.
His bizarre project to absorb Canada will be forgotten sooner or later. I served as Acting High Commissioner in Canada (1983-85), and there is no question of any surrender by Canada.
Even after the mess created by Trump’s tariff tantrums is sorted, the damage he has done will remain for a while. Marc Antony in Shakespeare’s Julius Caesar said:
The evil that men do lives after them; The good is oft interrèd with their bones.
Historians might find it difficult to identify any good done by Trump unless he brings an end to the war in Ukraine.
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