Dr Sudhir Kumar Das
(dasudhirk@gmail.com)‘
‘Reciprocal tariffs – they do it to us, and we do it to them,” thundered temperamental Trump on the 2nd of April in the Rose Garden of the White House. His statement sent shivers down the spine of many world leaders as it jolted their economies on a seismic scale. It is felt that, after Trump’s declaration of reciprocal tariffs, the economies of many countries will go into a tailspin or be pushed into a bottomless abyss. Considered in a historical perspective, since the 1990s the capitalistic economic system has gone global. Countries opened up their economies to foreign players so that their investments will generate jobs domestically, give a boost to economic activities, and bring prosperity to the country. The historically accepted concept of mercantilism that advocated national wealth accumulation through trade surpluses and through protectionism gave way to a globalised world of interconnectedness and interdependence on the economies of the world. The mercantilist economic policy of protectionism of the governments to protect their domestic industries from foreign competition was considered an outdated idea in the 1990s. Free trade, open markets, special economic zones, international trade, and diminishing governmental interference in the economy became the buzzwords of globalisation. Nations, one after another, embraced globalisation like ducklings to water. Nation states gradually realised that economic prosperity lies not in the concept of the wealth of the nation as mercantilism propounded but in getting connected to the wealth of the world. All this rosy picture about an interconnected world economy and shared development of nations being tied to one another economically suddenly received a seismic jolt when temperamental American president Donald John Trump declared his concept of ‘reciprocal tariff’. This new tariff regime announced in a Rose Garden ceremony on 2nd April 2025 is termed by Trump as the ‘Liberation Day’ for the American economy. Trump, in an accusatory tone, announced that many countries take an unfair trade advantage by charging very high tariffs on American goods, whereas they export their goods to America, paying comparatively much lower tariffs. As a result of this unfair trade practice, the US has a trade deficit with many countries in the world. Thus, he is determined to put an end to this unfair trade practice by these countries, friend or foe, under this reciprocal tariff regime. He has already declared a trade war against countries like Canada, Mexico, and China by levying a 25% tariff on auto imports. According to White House advisor Peter Navarro, by following a reciprocal tariff regime, America will generate $6 trillion of federal revenue in the next ten years to make America wealthy and prosperous. Observers look at this as the first step of Trump in the way of the realisation of his election slogan ‘Make America Great Again’ (MAGA). Trump has definitely brought in geoeconomics into the world of geopolitics.
Nobody, for sure, can predict the impacts of this action of mercurial Donald Trump on the world economy as well as on the economy of the US. The Trump administration argues that when imports go down as a result of high tariffs, manufacturing units that have gone to China, Vietnam, Canada, and Mexico will be forced to set up their manufacturing plants in America, generating new job opportunities for its citizens. However, pragmatically speaking, it sounds shallow, because America is not known for a cheap workforce on an unlimited scale as is the case in many Asian and Latin American countries, the mainstay of any industry. Moreover, setting up a manufacturing plant in the US, cutting through many government agencies, is still a herculean task. It remains to be seen how many entrepreneurs scared by Trump’s new tariff regime will rush into the US to set up manufacturing plants there.
By conflating geoeconomics with geopolitics, Trump has disturbed a hornet’s nest. The cacophony of protests after Trump’s reciprocal tariff announcement on 2nd April, even from the heads of state of his closest and most trusted allies like Australia, the UK, Canada, the EU, and other NATO countries, is testimony to this fact. Australian Prime Minister Anthony Albanese made a candid statement that Trump’s reciprocal tariffs are not the act of a friend. Many closest allies, like Canada, South Korea and Japan, have already announced plans to counter the imposition of tariffs by allying with China. Even America’s closest allies feel very strongly about this unilateral imposition of reciprocal tariffs, and they are preparing to guard their own economic interests. The allies have been an inalienable part of the American foreign policy. By alienating the allies like Australia and the UK (the AUKUS partners) and Canada, Trump is putting American foreign policy in great jeopardy. This unilateral imposition of Trump’s reciprocal tariff has also riled up countries like Japan and South Korea, two of the most reliable partners of the US in Asia. The EU’s reaction to Trump’s tariffs is nothing short of a war cry. The president of the EU Commission, Ursula von der Leyen, in her reaction to Trump’s unilateral tariff announcement, clearly mentions that they have a strong plan for retaliation against tariffs, meaning closing the doors for American products into European markets. A possibility America can ill afford at this crucial juncture of a trade war initiated by Trump. He cannot afford to lose a good 592 billion euros of export markets in the EU. There is not only the threat of losing markets for American products; what has become now more palpable is the growing anti-American feeling among the people of these countries once considered trusted allies. There is a campaign going on in Canada to boycott American products, and the retailers in Canada are taking American products off their shop shelves. French president Emmanuel Macron has called upon the industrialists of his country and Europe not to invest in the US. This definitely will lead to the isolation of America, as all the erstwhile allies will team up with China, the chief adversary, against the US for a prolonged trade war. Many heads of state of the American allies have started to count the US as an enemy who is out to destroy them economically.
How will Trump’s reciprocal tariffs affect the domestic market of America? It is an undeniable fact that the enhanced tariffs will have to be paid by the US firms importing the goods. The US firms, in order to escape the enhanced rate of tariffs, will be forced to change suppliers or push business partners to share the cost or raise the price of the goods and pass the burden on to the American consumers. This will have an inflationary effect on the American economy. In the worst-case scenario, the US economy may go into a recession, affecting the world economy equally badly, as many economies, including India’s, depend on the markets in America.
To what extent will India’s economy get impacted by Trump’s reciprocal tariffs? India cannot escape the tremors of this economic earthquake. Trump has levied a 27% tariff on Indian exports, which he terms as ‘discounted reciprocal tariffs’. India exported goods worth $60 billion in April-December, 2024, to the US. The sectors that hold the bulk of exports to the US are pharmaceuticals, electrical machinery, nuclear boilers, apparel, jewellery, and diamonds. The government of India is saying that they are studying the impact of this American reciprocal tariff, and negotiations are going on between the two governments to mitigate its effect on bilateral trade. The 27% reciprocal tariff is comparatively lower than the tariff imposed on other Asian countries like South Korea, Thailand, and China. All said and done, nobody can predict which way the world economy will be impacted by this atrocious trade war initiated by President Trump. Will Trump be remembered as an egoistic, reckless ruler who not only ransacked the world economy but also his own with his temerarious decisions, or will he come out victorious, forcing other countries to bow before him? Let us leave this to history.