Global economy: Trump tariffs slow down activity—but India may be a ‘winner’
Virendra Pandit
New Delhi: Within four months of his second inauguration at the White House on January 20, 2025, US President Donald Trump’s controversial tariff war has dragged the global economy down, barring exceptions, the media reported on Monday.
His tariffs are increasingly clogging up the wheels of a world economy which for decades were greased by predictable and relatively free trade.
Industries right from multinational behemoths to e-commerce players cut their sales targets last weeks, warned of job cuts, and reviewed their business plans, while major economies downgraded growth prospects amid bleak data read-outs, the reports said.
While financial markets are still betting the US and China may, after all, pull back from an all-out trade war and that Trump, businessman-turned-politician, will cut deals to avert higher tariffs on others, the sheer uncertainty of where this will end has become a major drag factor in itself.
“The US tariff policy is a serious negative shock for the world in the near term,” Isabelle Mateos y Lago, Group Chief Economist at French bank BNP Paribas, was quoted as saying.
“The US tariffs end-game may be further away and at a higher level than previously thought,” she said of blanket US tariffs currently set at a baseline of 10 percent across-the-board, alongside higher, sector-specific charges on products such as steel, aluminium and autos. China faces unprecedented US tariff of 145 percent, and even 245 percent on some items.
As President Trump blew hot and cold, and China fired on all cylinders, Beijing said on Friday it was “evaluating” an offer from Washington to hold talks over 145 percent US tariffs, to which it has responded with 125 percent levies on US goods. Trump’s administration also suggested it is close to deals with countries including India, South Korea, and Japan to avert more tariffs in weeks to come, but tangible results are still awaited.
Meanwhile, European companies such as Swedish appliances maker Electrolux slashed its outlook while Volvo Cars, computer gadget maker Logitech and drinks giant Diageo abandoned their targets on the ongoing uncertainty.
Last week’s removal of the “de minimis” duty-free treatment of e-commerce packages worth less than USD 800 for products from China is a hammer-blow for many smaller players.
“We’re going from zero to 145 per cent, which is really untenable for companies and also for customers,” said Cindy Allen, CEO of Trade Force Multiplier, a global trade consultancy. “I’ve seen a lot of small to medium-sized businesses just choose to exit the market altogether.”
Alarmed with the tariff, the Bank of Japan cut its growth forecasts last week, while forecasters cited trade tensions in growth outlook downgrades for the Netherlands and the Middle East and North Africa (MENA) region.
While the official measures of activity in top economies are still catching up with the downbeat mood, it is surfacing in the closely watched surveys of purchasing managers at factories around the world.
China’s factory activity contracted at the fastest pace in 16 months in April, one such survey showed last week, while a similar UK readout showed British factory exports last month shrinking at their sharpest pace in almost five years.
While front-loading may have helped India to a 10-month high in manufacturing growth in April, analysts noted the South Asian country – which faces far lower tariffs of 26 percent, than China, and towards which Apple has shifted some output – could end up a genuine winner.
“India is well positioned to be an alternative to China as a supplier of goods to the US in the immediate term,” emerging markets economist Shilan Shah at Capital Economics said, predicting punitive tariffs on China are “here to stay.”
As of now, most experts are calling the Trump tariff gambit a “demand shock” to the world economy which, by making imports more expensive for American businesses and consumers, will sap activity elsewhere.
The silver lining could be that this reduces inflationary pressures and so will give central banks elsewhere greater scope to boost the economy with interest rate cuts – something the Bank of England is seen taking advantage of this week.
But what is yet to play out is whether Trump’s bid to re-balance the trading system in America’s favour finally prompts others to revamp their own economies: for example, if China moves to raise stimulus for its domestic economy, or euro zone countries remove the barriers that still hold back their single market.
