Countries around the world are responding in different ways to the tariff assault initiated by the US under President Donald Trump. China has enforced counter-tariffs, indicating thereby that it is ready to take the US head-on. As the second-biggest economy, it is naturally inclined to use the clout it has worked strenuously to develop over the years as a means to establishing its dominance. India, on the other hand, which economists feel will be less impacted than others because of a large and growing domestic market, has shown its willingness to negotiate a mutually beneficial agreement with the US. Some small countries dependent on just a few products for export earnings are the hardest hit.
The adverse impact of the tariff war is already being felt in a big way in the US, itself, and there is fear that a recession might be on the way. Unless Trump changes his approach and rolls back on the one-sided tariff hike, there is little likelihood that the benefits, if any, of the policy will benefit the US, at least in the short term. If he persists, it may happen that other countries, particularly those not traditionally allied with the US, such as China, Russia and India, may finally come up with an alternative trade eco-system that they have been working on in their own ways over the past few years. Most certainly, the present situation is a big setback for the World Trade Organisation, which is on the way to becoming irrelevant. Also, much will depend on the track the European Union takes, which has been over-dependent on the US for many decades in many ways. In the present climate of war, the pressure to find serious alternatives will be even greater.
India-China trade relations, though heavily weighted in the latter’s favour, are also being seen as having great potential. It is only because of a long history of military confrontations on the border that the natural compatibility of the two nations has not been developed to the necessary level. Everybody is asking whether some kind of economic détente can be arrived at as a most resounding counter to Trump’s bullying. India’s neighbourhood approach has also been beneficial in developing not only good trade relations but also infrastructure support for greater outreach. Pakistan and Bangladesh are outliers in this and, as a consequence, will suffer the most from the new developments. Everybody is agreed that, if played right, this challenge can become a huge opportunity for the Indian economy.
