Did the bond market really humble Donald Trump? Well, the the story doesn't wash.

Within hours of 'Liberation Day' day reciprocal tariffs going into effect on April 9, President Trump announced a 90-day pause on reciprocal tariffs on all countries except China. The baseline tariff of 10 per cent would stay as would the tariff of 25 per cent on aluminium, steel and autos.

Market analysts celebrated Trump's supposed retreat as a triumph of the bond market. They said that there was a bond market sell-off prompted by fears of stagflation brought on by Trump's tariffs. Bond market yields started rising. This raised concerns about a possible financial meltdown. 

How would such a meltdown happen? Well, one reason would be that government bonds are pledged as collateral in various trades. When bond prices fall, margin calls go up. To fund the margins, traders have to stump up cash. They would do so by selling government bonds which are the most liquid securities one can have. That would cause a further fall in bond prices, more margin calls.... a vicious spiral would emerge.

There are various other trades that could lead to the same outcome. The Economist explains these very well. 

Plausible as the explanation seems, there are serious flaws in it:

i.  Government bond yields can rise any time, sometimes very sharply. Does that mean that every time that happens, we would have a financial crisis because government bonds are pledged as collateral in trades? 

ii. Trump announced his pause on April 9. Yields did not fall immediately thereafter. They actually rose from 4.39 percent on 10 year US government bonds from 4.39 per cent to 4.49 per cent on April 11. They have since fallen to 4.33 per cent. The pause is not a material change in the tariff situation, by any stretch of imagination. Apart from the tariffs that remain in place, the tariff war between the two principal economies, US and China, has escalated to a point where Trump has announced a 245 per cent on Chinese imports! I cannot see how the 90-day pause can be construed as a win for the bond market.

iii. There had been a much bigger jump in 10-year bond yields earlier. The 10-year yield jumped from 4.18 per cent on 4.18 per cent  on December 5, 2024 before the results of the presidential elections were known to 4.8 per cent on January 13, 2025, ten days before Trump was sworn in as President. It was a much bigger jump that what we saw around Lberation Day- from 3.99 per cent on April 4 to 4.39 per cent on April 9. We should have had a financial meltdown in January if the story about rising bond yields is true.

Trump seems to have sensed that there was no tearing hurry for him to take on all economies at one go. Better to focus on the main problem, China. If that brought comfort to the markets and calmed things down for a while, it was welcome. There doesn't seem to anything more to the pause. 

The bond market story is a convenient stick with which to beat Trump- it serves the purpose of showing up Trump as an ignoramus who understands little about how markets work. Well, that's a pretty stupid assumption to make about a billionaire businessman. 

Is Trump right on tariffs? Will he bring it off?

President Trump announced a 90 day pause on reciprocal tariffs last week for all countires except Chiina. Analysts were quick to construe it as a big defeat for Trump handed out by the bond market. A selloff of bonds and rising bond market yields at a time when equities were also being sold portended a major financial crisi, they say, causing Trump to back off.

Sorry, it doesn't mean a retreat from Trump's basic position on tariffs, namely, that tariffs are needed to protect the US economy from "unfair" trade where countries rig their currencies, have higher tariff barriers than the US, use non-tariff barriers in a variety of ways, provide massive subsidies to domestic companies, etc. Nor has Trump resiled from his position that America's chronic trade deficits are unsustainable.

Trump has a reasoned position on tariffs, one that reflects his convictions of several decades. He will not give up on them. He is likely to calibrate tariffs in a way that will not cause too much turmoil in the financial markets.

I explain some of the popular perceptions about the ongoing tariff war in my recent BS article, Trump tariffs: who will have the last laugh?

Trump tariffs: Who will have the last laugh?

T T Ram Mohan

Mr Trump may temper his approach from time to time, but to think that he will change his basic philosophy is delusional

US President Donald Trump’s tariff policy caused stock markets to tumble and sent shock waves through the world’s political capitals. Commentators warned of stagflation in the US and a collapse of global economic growth.  Mr Trump has since announced a 90-day pause on reciprocal tariffs on all countries except China, which faces a tariff of 125 per cent. 

However, the baseline tariff of 10 per cent remains. So do the tariffs of 25 per cent on aluminium and steel imports, and on the 25 per cent tariff on the automobile sector.  The relief over the pause on reciprocal tariffs is understandable. But there’s no getting away from the fact that the baseline tariff of 10 per cent is way above America’s earlier average tariff rate of 2.8 per cent.   

The period ahead promises an answer to a most fascinating question. In matters of economic policy, what matters more- the instinct of the charismatic politician or the theories of academics? Will Mr Trump prevail in his attempt to restore manufacturing to the US and reduce America’s chronic trade deficits? Or will he leave behind a legacy of economic ruin?

In addressing these questions, it’s useful to examine some of the propositions one hears in public discourse.

i.Mr Trump is just a crude, bullying politician who acts on impulse and not through rigorous reasoning. He understands little of economics. 

Crudity and bullying are hardly novelties in a President of the United States. The notion that Mr Trump is an uninformed person is ridiculous. You don’t become a billionaire and President of the United States twice –the first time without any experience in politics- by being a country bumpkin. 

Economists Arthur Laffer and Stephen Moore, who have been advisors to Mr Trump during his two presidential bids, have together authored a book, The Trump economic miracle and the plan to unleash prosperity again (2024). They write, “Trump is not the person the media has so unfairly portrayed. He is certainly not the villain, conniving and intellectually shallow man that his adversaries have portrayed him as since the day he first announced he was running for president back in 2015.” In another place, they remark, “Trump has what we call ‘Street Smart Economics’”. Mr Trump’s detractors will wince, but it’s good to know that some very bright people have a different view.

Mr Trump has an impressive economic team. His Treasury Secretary, Scott Bessent, is a legendary fund manager reputed  for his grasp of the macroeconomy- he was a member of the Soros team that betted against the pound in 1992. Peter Navarro, who advises Mr Trump on trade, is a Harvard PhD and a former professor at the University of California (Irvine). Stephen Miran, chairman of the Council of Economic Advisers, is also a Harvard PhD with experience in the financial markets. Mr Trump will not lack sound economic advice.

   ii.            Mr Trump’s tariffs go against the principle of free trade that has ushered in growth and prosperity, especially in the post-World War II  (WWII) world.

Mr Trump believes that free trade is something of a myth- and many economists would agree. The great economic powers of the 19th century, including the US and Britain, achieved growth, not through free trade, but behind protectionist walls. They pushed the idea of free trade when they needed to access the markets of other nations. 

The post-WWII world is not quite one when where firms compete on their own on a level playing field. What we have had is “industrial policy”, which includes support to domestic firms through subsidies and non-tariff barriers, not just tariffs. The US funds research at universities that leads on to breakthrough innovations, such as the Internet. American firms benefit at public cost. The East Asian Tigers grew on the back of targeted support to particular firms and sectors. China remains a leading exponent of industrial policy even today.  Free trade is not fair trade, as Mr Trump is fond of saying.  

iii.            If the version of free trade we have had in the past decades has brought prosperity to America, why disrupt it?  

Numbers such as the gross domestic product (GDP) growth rate or increase in per capita income can be deceptive. They don’t capture the fact that the benefits of so-called free trade are unevenly distributed. That is certainly true of the US. 

 Robert Lighthizer, who led the assault on free trade in Mr Trump’s first term, says that in the 16 years before China joined the World Trade Organization, real median household income in the United States (measured in 2019 dollars) rose from $53,337 in 1984 to $63,292 in 2000. Thereafter, real median household income fell below the 2000 level and remained it in every year until 2016, when Mr Trump first became President. Even in 2016, it only reached $63,683 (an increase of less than $400 in 16 years).  The US economy grew but the average person lost out. 

When Mr Trump stepped down in 2020, median real family income was up by 6.8 per cent. Economists ascribe the increase to Mr Trump’s notable initiatives such as tariffs on Chinese imports, the renegotiation of NAFTA and the tax cuts of 2017. Together, Mr Lighthizer says, Mr Trump’s initiatives caused thousands of manufacturing jobs to return in his first term. That is the source of Mr Trump’s appeal to the American middle class, and it explains his electoral triumphs in 2016 and 2024. 

iv.            The tariffs announced by Mr Trump are a negotiating tactic and will be rolled back once America’s partners enter into negotiations. 

Mr Trump has indicated that he is open to negotiating reciprocal tariffs with America’s trade partners. The 90-day pause is intended for that purpose. However, the baseline tariff of 10 per cent is a different matter altogether. Mr Trump thinks American needs manufacturing not just for creating jobs for ordinary Americans but for purposes of national security. It cannot afford to depend on imports of pharmaceuticals, ships, steel, aluminium, semiconductors. That’s why the baseline tariff and tariffs on aluminium, steel and automobiles stay. Tariffs on other products, such as pharmaceuticals, may well follow. 

 Mr Trump views tariffs as a means of raising revenues with which he can reduce taxes at home. All taxes are a form of inefficiency, but tariffs, some economists argue, are less harmful than taxes on corporations and individuals. Mr Trump sees tariffs as penalising other nations while relieving the burden on American taxpayers. 

 In sum, tariffs are integral to Mr Trump’s vision for the US economy. Mr Trump may temper his approach from time to time in response to convulsions in the financial markets. But to think that he will change his basic philosophy is delusional. 

Did you know? - Harvard gets $9 bn in federal grants !

Harvard is,perhaps, the richest university in the US with over $50 bn in endowment funds. It is a private university. And yet it gets $ 9bn in federal funds, according to this report in the FT! This  includes $256 mn in contracts and $8.7 bn in grants.

That is certainly news to me. I was aware of government funding for projects and funding through agencies such as the National Science Foundation. I was not aware of outright grants. I read also that Columbia gets $400 mn in grants and $5 bn in other forms. 

The Trump administration is asking universities to review their policies on anti-semitism, DEI (diversity8, equity and inclusion), etc. in order to qualify for funding. Columbia university announced its willingness to fall in line with the government's demands. It appears there was a severe backlash from faculty and students which resulted in the president of the University announcing her decision to step down.

My concern here is not with the problems American universities are having with the government. It is about the financing of higher education. The combination of endowments and government funding allows America's private universities to massively subsidise their courses. The fee charged does not cover costs. At the undergrad level, there are tuition and other waivers- Harvard has said that for 2025-26, undergrad education would be free for all students whose family income is below $100,000. 'Free' means the university would cover tuition, food, housing, health insurance, and travel costs. 

In India, courses at government universities are subsidised but not those at private universities. The IIMs have relatively small or no endowments and the leading IIMs do not get government funding, so they recover costs plus margins through enormous fees. The same goes for engineering and medical courses at non-government colleges.

The failure to subsidise higher education in India across a wide swathe of colleges has implications for inclusion, the financial well-being of students who pay for courses and the cost of services such as health for the average person. Much of Europe offers free or subsidised education for its citizens. So does Canada. Our model is seriously flawed and needs to be revisited. 

America's 25 per cent tariff on auto imports are justified

Trump's latest move on tariffs is to impose a 25 per cent tariff on all auto imports, including parts. This article makes the case with great clarity.

The problem for US exports to the EU is that these are subject to VAT. Exports of EU countries, including from one EU country to another, get a VAT rebate. EU exports to the US would, of course, qualifyi for the VAT rebate. VAT is generally 21 per cent. American car makers pay domestic tax and a further VAT on exports to US. The author estimates that, to offset the disadvantage American exporters face in the EU, a tariff of 25 per cent is in order.

That's exactly what Trump is imposing. Whether a like tariff can be justified on exports from Asia and North America is not clear. But it certainly fits in with Trump's grand plan to bring manufacturing back to the US. 

Trump posted on Social Truth:

For years we have been ripped off by very country in the world, friend or foe. But those days are over-Ameica First!!

He has a point at least where the EU is concerned.

Trump is not kidding about his MAGA agenda, he's dead serious

It amuses me that nearly two months in Trump's second term, his critics see his pronouncements as posturing or clowning. Sorry, folks, Trump is dead serious about his MAGA agenda. All nations will have to find ways to cope with it: either they fall broadly in line (perhaps with some negotiation) or they end up confronting the US and paying the price.

Whatever Trump is attempting now is what he wanted to accomplish in his first term itself. The Washington establishment managed to scuttle his initiatives then. Trump has learnt since and will not be deterred. Peter Navarro, an insider in Trump's administration then and now, tells the story in crystal clear terms in his book, Time to Take Back Trump's America.

I have a BS article on how the MAGA agenda is unfolding relentlessly. 

Donald Trump is a man in a hurry

Say the worst about Donald Trump, but you can’t deny that he has hit the ground running. Tariffs, immigration, the Ukraine war, the conflict in Palestine, slashing jobs in government—the pace of initiatives and executive orders has been breathtaking. 

The US stock market has taken a beating. America’s allies in Europe are dismayed. Leaders across the world are bracing to cope with the impact of the tariffs that Mr Trump has rolled out.  Mr Trump is unfazed. 

Critics see Mr Trump as sowing chaos across the world in pursuing ideas that he hasn’t really thought through.  John Bolton, national security advisor during Mr Trump’s first term and now one of his most bitter critics, says the President has no philosophy or policy—his moves are all about making himself look good.     

Mr Trump’s critics underestimate him,   as they did after his loss to Joe Biden in the presidential elections of 2020. They never imagined that Mr Trump would fight off the “lawfare”- the use of the legal machinery to keep him out of the political arena- unleashed on him by the Biden administration and claim the Presidency a second time. They now find it hard to accept that Mr Trump is simply delivering on his election promises. Sensible leaders aren’t supposed to do that — election promises are meant only to win votes. 

To understand that Mr Trump means business, you must read Peter Navarro’s Taking back Trump’s America, published in September 2022. Mr Navarro was an advisor on trade policy in Mr Trump’s first term and remains one in his present term. He’s widely seen as a trusted confidante and a member of the President’s inner circle. 

Mr Navarro has earned his boss’s trust the hard way. He refused to testify before a US House Select Committee in the matter involving Mr Trump’s attempts to overturn the election result of 2020 and ended up being jailed for four months for contempt of Congress. 

You may read the book for sheer pleasure. Mr Navarro is no hack: he has a doctorate in economics from Harvard and was a professor at the University of California (Irvine) School of Business. He   writes with verve and wit about the intrigues and manoeuvrings within the White House—and he doesn’t believe in pulling his punches.   All that is unfolding now falls neatly into place when you have read Mr Navarro’s narrative. Here is the gist of it. 

Mr Trump was elected in 2016 on the plank of what Mr Navarro calls Populist Economic Nationalism. This included: Restoring US manufacturing by keeping out imports through tariffs; cracking down on illegal immigration; being tough on China; and bringing US troops home from endless wars.

Mr Trump was new to politics and Washington and he made the mistake of appointing Washington establishment-types as key members of his team. These were committed globalists and status quoists, with little use for  use for Mr Trump’s policy agenda. The Trojan horses within the administration used every trick to mislead him and thwart his agenda. Mr Navarro quotes Robert Lighthizer, the then US trade representative, as saying there were only two types of people in the Trump administration: Those people who thought they had to save the world from President Trump, and those who thought President Trump would save the world. For the most past, the former prevailed.

 It was, as Mr Navarro puts it, a case of Bad Personnel and Bad Process making for Bad Policy and Bad Politics. Many of these Bad Personnel were fired down the line. However, Mr Trump woke up to their tricks a little late in the day. By the time the 2020 elections came up, the constituencies that had voted Mr Trump to power were left unsatisfied with the outcomes. It was the failure to deliver on the economic nationalist platform that resulted in Mr Trump narrowly losing to Mr Biden in 2020.

The Biden administration failed to address the root causes of widespread discontent in the electorate, notably the loss of jobs through offshoring and unchecked immigration. In the 2024 presidential elections, the electorate was even more responsive to Mr Trump’s platform of Populist Economic Nationalism, handing him a more emphatic victory than in 2016.

Mr Trump has learnt from the failures of his first term. He has made sure his administration is now packed with loyalists he can count on to carry out his mission, not people who will find ways to stymie his orders or cook up misleading intelligence. He knows very well that, given time, the Washington establishment will regroup and attack. That’s why Mr Trump is a man in a hurry.

Mr Navarro spells out the three legs of the Economic Triangle that will serve to achieve Mr Trump’s vision of MAGA (Make America Great Again). First, strengthen American manufacturing. This is to be done through policies such as high tariffs and Buy American, Hire American.   

The second leg of the Triangle is cracking down on illegal immigration. American workers losing jobs to those who are willing to work for lower pay has been another big cause of resentment in the electorate. The third leg is putting an end to America’s endless wars. Mr Navarro speaks for Mr Trump when he says, “They are futile and pernicious ‘plowshares into swords’ wars that have drained trillions of dollars from the American economy to the benefit of a military-industrial complex and at the expense of modernizing our infrastructure, improving our schools, and lowering our taxes.Think Ukraine.

One thing should be clear enough: Mr Trump’s near-daily references to his agenda are not cheap bullying, negotiating tactics, or theatrics. All that has happened in the past seven weeks is strictly according to plan. Mr Trump is determined to  remake the world order and he knows full well that his plans will be disruptive for the everybody.    He concedes  that there will be short-term pain for the US. 

Optimists had construed this to mean at most a one-time increase in the US inflation rate of one per cent. Mr Trump has since spooked the markets by refusing to rule out the possibility of a recession in the US.  He’s confident the US will eventually emerge the winner from whatever turmoil his policies cause.   

 Recent history suggests that the US has the least to fear from global disruption. In the past two decades, we have had a global financial crisis (GFC), a Eurozone crisis, the Covid crisis, the Ukraine conflict, and a conflagration in West Asia. America’s share of world GDP has risen from 23 per cent in 2008 at the time of the GFC to 26 per cent in 2023. Mr Trump has reason to believe that the US has the economic and political clout needed to remake the world order to its advantage.

What can we expect from Union Budget for FY 26?

The imminent arrival of Donald Trump as President of the US has injected enormous uncertainty into the global environment. In such a situation, the Union budget for FY 26 has to be low-key, not overly ambitious and aimed primarily at ensuring the shock waves that Trump is expected to unleash do not destabilise the economy.

My artice in BS, Budgeting in the time of Trump. 

Economic policymaking must always reckon with uncertainty. There are times when the uncertainty is acute. The biggest challenge in recent years was the Covid-19 pandemic. It was hard to tell how long it would last. The policy response to it was, however, quite clear--- fiscal and monetary stimulus, although nations came up with varying degrees of stimuli. 

What looms ahead of the Union Budget for FY26 is, perhaps, even more challenging. Nobody quite knows how the US President-elect, Donald Trump, will proceed with his plans and how other nations will respond.  Also uncertain are his stance on the two geopolitical hotspots at the moment, Ukraine and West Asia, not to mention his own additions, Greenland and the Panama Canal. The only known is that the world economy must brace for major shocks. The focus in the coming Union Budget must be to keep the growth momentum going so that the economy is better placed to withstand any shocks that arise.

Going by the latest estimates of the NSO, the government is likely to fall slightly short of the nominal growth target of 10.5 per cent for FY25. It may still meet the fiscal deficit target of 4.9 per cent of gross domestic product (GDP) because capital expenditure will fall below the budgetary estimate. 

For FY26, the priority must be to maintain the central government expenditure at the FY25 level of 3.4 per cent of GDP, at the very least. This must not happen at the expense of capital expenditure by public sector undertakings (PSUs). Total central public expenditure (central government plus central PSUs) must be maintained at the FY 25 level of 4.5 per cent. 

This could well mean exceeding the fiscal deficit target of 4.5 per cent of GDP for FY26 indicated in last year’s Budget. So be it. The imperative is to aim for GDP growth of close to 6.5 per cent in the coming year. It is hard to see any big rise in private investment driving growth in the face of looming uncertainties. 

The finance minister had indicated in her speech last year that, from FY27 onwards, the government would focus on ensuring a fall in the central government debt-to -GDP ratio rather than on the fiscal deficit itself. In blunt terms, this means letting go of what has turned out to be a futile two-decade quest to meet the Fiscal Responsibility and Budget Management (FRBM) fiscal deficit target of 3 per cent. 

A strong fiscal stimulus is especially required because the scope for monetary easing may turn out to be less than what analysts had hoped for. The issue may not just be the persistence of domestic inflation. Mr Trump’s position on tariffs spells higher inflation in the US and a strengthening of the dollar, at least in the short-run. The US Federal Reserve has indicated that rate cuts in 2025 will be fewer than previously anticipated. Post-Trump, other economies may find it more difficult to delink their policy rates from those of the Fed.

The second priority in the Budget must be the issue of unemployment, especially educated unemployment. Last year’s Budget had announced three schemes aimed at incentivising employment in the private sector, along with an internship programme. It projected an expenditure of ~2 trillion over five years, or ~40,000 crore annually. However, the discernible allocation in the Budget was only ~12,000 crore.

The coming Budget should tell us what the outcomes have been. It is unlikely that the private sector has met the government’s expectations for job creation, or that it will in the future. Manufacturing has not taken off as expected, and it cannot be relied upon to generate large numbers of jobs in the near future. The services sector generates jobs but many are of low quality. 

To alleviate educated unemployment on a crash basis, the government must go all-out to fill vacancies in government. It must also offer the promised internship stipend of ~5,000 to all those who apply for internship through the government’s portal and fail to secure one within six months. 

There will be much hand-wringing over unproductive jobs in government and freebies. Critics will say that the government must instead invest more in education and healthcare or in infrastructure. The latter would create conditions for the growth rate to move to over 7 per cent. 

We have seen, however, that faster growth does not automatically create sufficient jobs or the right quality of jobs, not just in India, but also in other parts of the world. A large swathe of the population needs relief. With both the Centre and the states announcing handouts in various forms, we are moving towards an Indian version of a Universal Basic Income. Like it or not, that is the consensus across the political spectrum. If we can, nevertheless, sustain GDP growth at around 6.5 per cent in an adverse  global environment, investors will view India’s growth-with-inclusiveness model as no mean achievement. 

Lastly, the government must focus on improving governance and performance at PSUs and public sector banks. The imperative is even stronger now that privatisation   and asset monetisation have been put on the back burner.  

The Financial Services Institutions Bureau has turned out to be a good model for making top-level appointments. The Bureau comprises professionals, a representative of the RBI and a representative of the finance ministry. It recommends whole-time directors and non-executive chairpersons for financial institutions. The government takes a call on the recommendations made by the Bureau. 

The Bureau’s mandate should also be extended to the appointment of independent directors. The responsibilities cast on independent directors by the RBI have increased considerably. Compensation for independent directors at public sector banks needs to be improved-it is eminently affordable today. A graded scheme can be introduced, depending on the size and performance of a bank.

The Public Enterprise Selection Board, which performs similar functions at public enterprises in the non-financial sector, needs to be recast along the same lines as the FISB. It too must be mandated to appoint independent directors and on better terms. A separate panel could be created to evaluate the performance of boards at all public enterprises.

A growth rate target of around 6.5 per cent, a high level of public capex, increased government spending on job creation, a relaxed view of the fiscal deficit target, and a greater focus on performance at PSUs/PSBs—the recipe may seem distinctly unglamorous. Well, that is what is required in the uncertain times that the arrival of Mr Trump bodes.

Elon Musk wants regime change- in the UK!

The US is notorious for its attempts at regime change over the years. But that was almost always in the Third World or non-Western world.

Who would have thought that the US would want a regime change at one of its closest allies, the UK? And yet that is what Elon Musk has been doggedly pursuing over the past few months. Earlier, Musk spoke as a private citizen. But  no longer. He is now part of President-elect Donald Trump's incoming administration. 

Musk has publicly called for British PM Keir Starmer to step down saying he no longer enjoys public support. He has said that Starmer's continuance in office could spell civil war in the UK. He has lambasted Starmer for his alleged failure to crack down on criminal gangs in the sexual abuse of young girls when he was Crown Prosecutor.

And now comes the report that Musk is discussion with various groups in the UK to bring about Starmer's ouster well before the next UK elections. Musk has been talking to the UK's Reform Party to bring about regime change in the UK. But he dropped a bombshell recently by saying that the party leader, Nigel Farage, is not the right person to head it. This, after Farage had met him a month ago.

It is astonishing that there has been little condemnation of Musk's activities in the UK in the UK itself, on the European continent and in the US. Russia and China have been condemned for supposed acts that were nowhere as crude as what Musk is attempting.

Any self-respecting government would have warned a foreign individual off such blatant interference in its internal affairs. But when it comes to the US and Mr Trump, the norms are clearly different. How the British have fallen!

Manmohan Singh as talent spotter

Among the many tributes that have been paid to Dr Manmohan Singh, this one focuses on his ability to spot and nurture talent.

Among the many bright people Singh brought into or promoted in government were: C Rangarajan, Y V Reddy, MS Ahluwallia, Rakesh Mohan, Shankar Acharya, Jairam Ramesh, Nitin Desai, Arvind Virmani, Bimal Jalan, Vijay Joshi, Raghuram Rajan and Urjit Patel. Building leaders for the future is one of the principal task of a leader. It can be said that Dr Singh performed this role in an exemplary manner.

There is also a rousing tribute from Martin Wolf in the FT:

Singh achieved what he did because he was a special man at a special time. Ultimately, however, technocrats only succeed if those with power trust them with it. India benefited from the fact that people with power were willing to trust him to use it well at critical moments. He, in turn, provided something that today’s populists increasingly despise: knowledge, wisdom and experience. He also knew the importance of brilliant colleagues. A recent paper from the Mercatus Center describes him as “India’s finest talent scout”. In some quarters today, all this would condemn him as an embodiment of the “deep state”. That is because these people lack belief in the ideal of public service. Singh did believe in it. He believed, too, in a thriving democracy. Indeed, he thought India could not survive without one. The economically dynamic India of today is his legacy. So, too, is his example of service to the cause of a prosperous India in harmony with the world.

Why is media talking about Trump firing the Fed chief?

One is intrigued by the incessant speculation in the media about Trump's firing Fed Chairman Jay Powell once Trump is sworn in as president later this month. Kenneth Rogoff resurrects this speculation in a recent article but is quick to shoot down the possibility. 

By law, the Fed Chairperson has a fixed tenure. The President does not have the legal right to fire him or her. Of course, the President can get Congress to amend the law so as to enable to the President to fire a Fed Chief. But pushing through such legislation will not be easy despite the fact that Mr Trump is riding high at the moment. Opposition from Congressmen apart, Mr Trump has to risk with the damage such a move could inflict on the financial markets. Mr Powell, for his part, has said he has no intention of resigning.

Mr Trump can, of course, seek to undermine Mr Powell by criticising his moves. But he did so in his first term without inflicting any serious damage to the functioining of the Fed. Central bank independence does not mean the political authority cannot air its differences with the central bank in public. 

There is the larger question of whether the central bank chief must serve at the pleasure of the government. That is the case in India. It is open to the government to ask the RBI Governor to go- and without assigning reasons. That does not mean that is easy for any government to do so- as I mentioned earlier, the credibility of the central bank and the damage to financial markets and the economy are considerations that no government can brush aside. It's not easy to ask an RBI Governor to go even if the government has the authority to do so.

That apart, the RBI is not in the same position as the Fed. The Fed focuses on monetary policy and has some responsibility for bank regulation. The RBI is a full-scope central bank encompassing monetary policy, bank regulation, exchange rate management, government borrowings, currency management etc. Independence of the central bank is about independence in monetary policy. Such independence cannot extend to the other areas for which RBI has responsibility.

Lastly, chemistry at the top is important. The head of government must have a certain degree of comfort with the central bank chief . Where that comfort level is not there, the government should have the right to replace the central bank chief. That is not to say that the central bank chief must be a stooge of the government- no intelligent head of government would even want that because ultimately politicians in a democracy do feel the need to deliver. And they would understand that having an independent central bank is crucial to that objective. 

Mass deportations are not new to America

Trump's threat to throw out illegal immigrants in large numbers has raised hackles in several quarters. He is portrayed by some as a heartless monster who will show no mercy to illegal immigrants.

Hang on! Mass deportations are not new to the US at all. During President Biden's time, the US is said to have deported over 140,000 persons in fiscal 2023 alone. The Economist reported recently that the peak in Obama's time was 400,000. And the all time high was in during Eishenhower's tenure- one million! 

Wonder which of these numbers Trump will be able to beat. 

Trump and tariffs: have no illusions

If death and taxes are the two certainties of life, there is a third when Trump is around: tariffs. Trump is committed to using tariffs to further American economic interests. He may be willing to be flexible on the level of tariffs after discussions with America's trading partners but nobody should have any illusions about his not using them.

I was convinced on this issue after reading Robert Lighthizer's book, No Free Trade. Lighthizer was the US Trade Representative on Trump's earlier presidency and was a contended for the Treasury Secretary's job this time around.

The central theme of the book is that tariffs are necessary for America, will work for America and they are part of Trump's vision of how America needs to be remade.

My article in BS on this subject is reproduced below:

Never in recent memory has the fate of the world at the approach of a New Year hinged on one person as it does today. In recent weeks, it has seemed that key political and economic decisions in the world’s political capitals are on hold until Donald Trump’s assumption of office as President of the United States next January.  

The US is, by a wide margin, the world’s pre-eminent power. The actions of its President are bound to impact the rest of the world. However, Mr Trump is not just another US President. In respect of both foreign policy and economic policy, he represents a sharp discontinuity, one that is  potentially  disruptive for the US as well as the rest of the world. That is why the world watches with bated breath. 

In the realm of geopolitics, the world awaits Mr Trump’s moves in respect of two hot spots, West Asia and Ukraine.  Economic policy makers are bracing for Mr Trump’s moves  on two of   his key promises: Higher tariffs on imports into the US and a crackdown on illegal immigration. 

The demonisation of Mr Trump is so common   in the Western mainstream media that he isn’t being given credit for swearing by something that few would disagree with: The world could do with fewer wars. It is worth quoting from a speech Mr Trump made in March 2023:

“We need PEACE without delay. In addition, there must also be a complete commitment to dismantling the entire globalist neo-con establishment that is perpetually dragging us into endless wars, pretending to fight for freedom and democracy abroad, while they turn us into a third-world country and a third-world dictatorship right here at home. The State Department, the defence bureaucracy, the intelligence services, and all the rest need to be completely overhauled and reconstituted to fire the Deep Staters and put America First.”

If that is not radical thinking, one knows not what is. The big question is whether the Deep State will let Mr Trump get on with the agenda he has in mind.  

In West Asia, Mr Trump has been presented with a fait accompli of sorts with the overthrow of the Assad regime in Syria.  The issue is not whether Mr Trump can extricate the US from Syria.  It is how he intends to deal with plans for the creation of a Greater Israel and the neo-con project to deal with other hostile regimes, notably Iran. There is the power of the Israel lobby in the US. Mr Trump himself has been hawkish on Iran. For Mr Trump to put his vision of peace into practice where West Asia is concerned will be quite a challenge.

On Ukraine, there is scope for greater optimism. Mr Trump has been emphatic that Ukraine must negotiate an end to the conflict with Russia. The Biden administration attempted to queer the pitch for Mr Trump there too by allowing Ukraine to fire long-range missiles into Russian territory. Russia responded with a new missile to which NATO apparently has no counter-measure. After a two week break, Ukraine has again fired long-range missiles into Russia. A strong retaliation from Russia is on the cards  

Russia has made it clear that it is not willing to freeze the status quo and that any settlement will now have to be pretty much on Russia’s terms. We should not be surprised if Mr Trump   decides to end America’s involvement in Ukraine by forcing President Volodymyr Zelensky’s hand.

On the US home front, there is no ambiguity whatsoever. An increase in tariffs and the deportation of illegal immigrants are both certainties. The only question is how far and how quickly Mr Trump will go in implementing these measures.

Tariffs are an article of faith with Mr Trump. He deeply and genuinely believes that tariffs are needed to realise his vision of a prosperous United States. His commitment to tariffs dates back to the late 1980s- in 1989, he had called for tariffs of 15 to 20 per cent on Japanese imports to curb the trade deficit.

Those in doubt may want to read Robert Lighthizer’s No Trade is Free. Mr Lighthizer was US Trade Representative in the previous Trump administration and had Mr Trump’s enthusiastic backing for his ideas. He was a contender for the post of Treasury Secretary or Commerce Secretary this time around but didn’t make the cut.  It would be a mistake to think that the case against free trade arises from ignorance of basic economic precepts. It is a carefully thought through position. Mr Lighthizer’s main points are as follows. 

First, the efficiency argument for free trade is flawed because the benefits accrue to a few, while the losers are more numerous. And no, the losers aren’t compensated through the gains from trade. For example, manufacturing workers cannot be easily retrained to do skilled work in services. The relocation of whole communities is not a simple matter either. Secondly, the services sector does not create jobs on the same scale as manufacturing. Only manufacturing can provide well-paying jobs for the vast majority of Americans. 

Thirdly, the US needs manufacturing because it is not in the interest of national security to be dependent fully on others for goods such as steel and pharmaceuticals. Manufacturing exports are nine times bigger than services exports and hence are vital to containing the US trade deficit. Manufacturing is a big source of innovation and has driven innovation in services, so it is not that services can be delinked from manufacturing. 

Fourthly, it is incorrect to suppose that the US trade deficit is self-correcting through a fall in the value of the dollar. The US has been running trade deficits for decades – and these keep growing. The US is the world’s reserve currency, so the dollar attracts capital inflows, which comes in the way of dollar depreciation. America’s leading trade partners, notably China, tend to manipulate their currencies to keep their exchange rates low. They also indulge in “unfair trade”- subsidising domestic companies and erecting non-tariff barriers. 

Mr Lighthizher’s punchline: All the great economies of the world were built behind a wall of protection and often with government money. The NDA government’s initiatives to boost segments of manufacturing through a combination of subsidies and tariffs are in line with Mr Lighthizer’s thinking and that of Mr Trump. 

Economists may ridicule Mr Trump’s belief in tariffs as an instrument for remaking the US. However, as his convincing win in the recent presidential elections shows, his anti-globalisation stance captures the mood of the majority of the American electorate. In the New Year, the world has little choice but  to adjust to Mr Trump’s way of thinking.  

Musk's comments: will the UK have the spine to respond?

Elon Musk has launched another salvo at the UK: he has asked for fresh elections, citing a poll that showed that Keir Starmer's Labour party had lost support amongst the people. Earlier, Musk had said that the UK was headed for a "civil war". 

The UK is not the sole ally that Musk has targeted. Musk has trained his guns on Justin Trudeau of Canada calling him an "insufferable fool" and predicting the collapse of his government. In Germany, he has thrown his weight behind a far-right party.

Just imagine. Had Russia made such remarks, how would Western governments respond? Musk is no longer just a private citizen. He is seen as Donald Trump's right-hand man and has been named to the new administration. His remarks cannot be lightly dismissed. They amount to blatant interference in British politics. Will the UK have the spine to respond?

It's hard to see how the Starmer dispensation can get its equation with Trump right even if were to ignore Musk's remarks. The Labour party had infuriated Trump by sending several of its senior figures to Kamala Harris' presidential convention in Chicago last July. The UK Foreign Secretary, David Lammy, will find it difficult to live down his characterisations of Trump in the past- "neo-Nazi", "tyrant", "xenophobic". Lammy has dismissed those remarks as those of a back-bencher but then Mr Trump may be in no mood to forget and forgive.