TIOL - COB( WEB) - 945
NOVEMBER 07, 2024

By Shailendra Kumar, Founder Editor

THE US Presidential elections were delicately poised between jitters and surprises. Both the candidates were running neck-and-neck - strangely tied, at times! The final outcome initially went down to the wire till electoral votes from the swing states favoured Donald Trump. In the final stretch of the roaring and frenzied campaign trail, Ms Harris stuck to the script of rah-rah American coda. But it was largely ad-libbing for Mr Donald Trump, who unabashedly let loose the mothballed pages of his dictionary of choicest words, and leisurely indulged in heaping profane insults on his Democratic rival threatening to louse up his Oval Office chances! In fact, even Ms Harris called him unhinged, racist, fascist and narcissistic. That is another issue that Mr Trump scored over her in choosing ad lib ear-hurting expressions like retarded, mentally impaired, dumb as a rock and many others. LOL! If we swirl away from such episodes enacted in the heat of crescendoing campaign to more serious policy planks, Mr Trump told a gathering in Chicago recently - "To me, the most beautiful word in the dictionary is tariff. And it's my favourite." He further qualified it - "I am a believer in tariffs". He is of strong belief that tariff is the most creative tool-kit ever invented by mankind! And he promises to levy 100% tariff on Mexico to cork the US immigration problem. Such a firm statement has triggered a quake down the spine of global leaders in almost all posh capitals across the world. But, why? Is it going to be so tectonically terrifying?

Before I delve deeper into the deleterious consequences of the tariff war, let's first examine his pledges made in the past against the canons of Doctrine of Preponderance of Possibilities. One of his many earth-shaking pledges which was made in 2016, was to "Drain the Swamp"! To his cheering supporters sloganeering with rapt applause Mr Trump had pledged that he would upend the prevailing culture of Washington. He had harangued the gathering that he was aware of the power of lobbyists and political donors who had effectively bought off elected representatives. Eek! He had claimed that he was uniquely positioned to disrupt the culture as he personally knew as a contributor of such a system! Holy Christ! But, during his four-year tenure, he sparsely took any measures to do so! Rather he permitted protocol-abusing expansion of private interests in White House-sponsored decisions. After his term ended, analysts diagnosed that he had rather perpetuated the profiteering culture of Washington in every respect! He ended up adding two million more to the workforce of the federal government. The total spending also doubled. And thus, he not only deepened but also expanded the size of the 'swamp'! New schemes hired more bureaucrats! He had launched USD 6 billion scheme called 'Farmers to Families' to cart food from farmers to households. Similar schemes multiplied the spending-size of the federal government.

Although Mr Trump says that he is still committed to 'drain the swamp' - rhetoric growing darker, but peering into his such track records, one may say that he may not resort to a universal tariff hike! However, if he does, what would be the ramifications for the global economy? He recently claimed that the US was never richer than in the 1890s when it had steep tariff fences! He believes that raising the tariff is unavoidable to rebalance the global economy which has skewed against the US! He further explains that such an approach would nudge and aid American companies to bring back manufacturing to the US and would create jobs for the locals. However, Democrats and noted economists took a diametrically opposite view. US Treasury Secretary Janet Yellen recently said that sweeping tariffs would raise prices for American consumers and make US businesses less competitive. It would also accelerate US isolationism and joblessness, added she. Nobel Laureate Joseph Stiglitz has said that lower and middle-class families would bear the brunt of Trump's tariff measures. He also fears that the US economy may face a trifecta of rising inflation, higher unemployment and slower growth as inflation would compel the Federal Reserves to raise interest rates and growth would be roiled hard.

Since he has done it against China during his tenure, a large number of trade experts believe that he may do it again. His proposal is to raise tariff above 20% on all inward trade worth about USD one trillion and mop up revenue to the tune of USD four trillion over the next decade! On Chinese companies, he dourly proposes to impose duty ranging from 60% to 100% to even 1000%! And his such a policy is eerily backed by not only half of Republican supporters but also close to 56% of independent voters who believe that such a move would compel US companies to bring home the lost jobs! Although the Peterson Institute for International Economics has shared its study that such a move would typically cost an average American household about USD 2600 per year but Trump advisors are not convinced and love to bicker incessantly. They say that their tariff policy would hurt only foreign countries! In fact, another study by the Yale Budget Lab has estimated that the poorest Americans would shell out 6% more against 1.4% more for the richest one per cent if the tariff goes up by 20% but the Trump's tent is not impressed! Voila! Another study by the Investment Bank UBS projects that a 10% hike in tariff may result in a 10% contraction in the stock market. Some American agriculture economists fear that any trade war with China would shift Beijing's imports from Brazil and Argentina and once a market share lost would never come back to US exports of agricultural goods!

In a nutshell, Mr Trump's tariff policy would upend not only the meandering route of global merchandise trade but also the corresponding financial flows across the globe. It would simply disrupt the present system of interdependence of economies which is a part of the global supply chain. Retaliatory tariff war is going to be just one stark reality if one may recall how EU had initiated revengeful tariff during his first tenure. Governments and corporate czars around the world have been lacing up their contingency blueprints to deal with potential Trump tariffs. Billionaires and diplomats from Asia, Europe, Latin America and even neighbouring Canada have been whispering in the eardrums of their American counterparts about Trump's future roadmap for the tariff war. The global fear is that Mr Trump will put the world on the time machine and take it back to the 19th century reign of mercantilism when the creativity of policy makers in every economy was confined to just one turf - that was to fortify the tariff wall! Against the silhouette of looming tariff wall, it may sound bizarre that Mr Trump also wants to lower the value of greenback to make exports more attractive! He has little realisation that his tariff wall would work just opposite - may catapult the dollar higher! In 2018, after he had raised tariffs against China, the US dollar had become stronger by 10% against yuan.

Besides raising tariffs, Mr Trump has thrown red meats before various demographics of his voters in the form of cutback of federal taxes. He has pledged to reduce corporate taxes further; income tax for middle-class; no tax on tips income, a tax credit for family caregivers and many more. All these tax concessions are projected to swell the already ballooning debt of USD 36 trillion by another USD eight trillion. Besides national debts and fiscal soreness, one prominent implication is going to be its draining effect on social security trust fund. At present, about 40% of social security beneficiaries pay taxes on some part of their doles but Mr Trump has promised no tax at all - making the fund poorer. Secondly, he is stubborn to chase away undocumented immigrants which means that a large number of such immigrants who pay payroll taxes, would further drain the social security trust fund. Some experts have projected that all such policy moves would cost the trust fund about USD one trillion in 10 years. Its spin-off effect is estimated that it would lead to a one-third contraction in social security benefits to Americans. Secondly, it is projected to go bankrupt by 2033 unless Congress steps in! On top of all these, Mr Trump's numero uno donor Elon Musk who wants to set up a new Department of Government Efficiency, is keen to reduce government spending by USD two trillion annually. How? Mr Biden's budget for 2024 was only for USD 6.5 trillion. Reducing it by one-third in one year looks impossible for all Nobel Laureates put together! His plans are tentative and speculative. Whatever may finally be done, what is certain is that it is going to warrant serious cost-of-living trimming by the Americans! Are they mentally, emotionally and viscerally prepared? What I clearly see for the Americans and the global trade is - Only dystopian kerfuffle and a pongy omnishambles all-around the world! Holy Trump! Only divine forces may save Americans and the world! Au revoir!