President Donald Trump's actions have truly stumped the pundits. He assumed office last January on a platform of imposing tariffs on goods imports into the US as a means of reducing America's chronic and ever-growing trade deficits. The experts denounced his plans saying it would take the US economy as well as the world economy into an abyss.
Mr Trump has been as good as his word. He first imposed "reciprocal tariffs" and then used these as a negotiating tool with leading trade partners who account for about 60 per cent of America's trade. The EU, UK, Japan and South Korea are among those who have been bludgeoned into submission. Those holding out have been hit with tariffs of up to 50 per cent. China faces a tariff of 30 per cent with a 90-day pause coming to an end in the next few days.
The astonishing thing is that the dire forecasts of experts have simply not come true. So far, Mr Trump has had his way without the world economy or the US economy going into a tailspin. Experts have now gone into overdrive to come up with reasons for why their forecasts have not come true. They are being dishonest. They must simply accept that they have been proved wrong.
More in my BS column, Trump is winning the tariff war hands down.
FINGER ON THE PULSE
TT RAM MOHAN
Trump is winning the tariff war hands down
India is smarting under the
tariff announced by United States President Donald Trump recently. It now faces
a tariff of 25 per cent, plus an additional 25 per cent penalty for importing
oil from Russia. Coming soon: Punitive tariffs on all pharmaceutical exports to
the US, something that will bite Indian pharma companies.
Nearly 70 countries have been hit by tariffs
on top of the universal 10 per cent levy. The tariffs are not just about
reducing America’s current account deficit. Mr Trump has weaponised them to
make a political point --- or even a personal one.
After announcing the 25 tariff on
India, Mr Trump added insult to injury by calling India a dead economy. He
flaunted the deal to explore oil reserves in Pakistan and hinted at Pakistan selling
oil to India down the road, clearly a poke in the eye for New Delhi.
India is not alone in being penalised and
humiliated by Mr Trump for reasons other than trade. Canada faces a tariff of
35 per cent for not curbing the flow of fentanyl and other drugs. Mr Trump made
it plain that Canada’s plan to recognise Palestine as a state is an
aggravation.
Switzerland has been hit with a
tariff of 39 per cent, the highest for any European country. Mr Trump is
irritated by the high prices Swiss pharmaceutical companies charge for their
drug exports to the US. South African exports face a tariff of 30 per cent for
“genocide” against whites. Brazil’s takes the cake. Its exports will be charged
a tariff of 50 per cent the highest for
any nation (the same as India’s) because Mr Trump believes that his friend, the
former Brazilian President Jair Bolsonaro, is being falsely prosecuted for
political reasons.
People everywhere are outraged by
Mr Trump’s whimsical ways. Commentators fulminate against his actions. But
here’s the bad news for Mr Trump’s detractors: Mr Trump is winning the tariff
war hands down.
When Mr Trump announced
“reciprocal” tariffs on April 2, pundits forecast a trade war in which other
nations would retaliate by imposing tariffs on US exports to them. Everybody
would be worse off as happened with the infamous Smoot-Hawley tariffs in the US
of 1930, which led on to the Great Depression.
Nothing of the sort has happened.
The United Kingdom, Japan, Vietnam, South Korean, Indonesia and the Philippines
have all caved in meekly to Mr Trump’s dictates and signed one-sided trade
deals. The European Union (EU), the second-largest economy in the world in
terms of gross domestic product (GDP), too capitulated--and how.
EU chief Ursula von der Leyen,
flew to Mr Trump’s golf course in Scotland to work out a trade deal. Mr Trump
kept her waiting until he and his son had finished their second round of golf.
Thereafter, he took her on a tour of his mansion where he bragged about the
magnificence of his ballroom. Ms Leyen sought to flatter the American President.
“You’re known as a tough negotiator and dealmaker”, she said. “But fair,” said
the US President. “But fair”, the EU head dutifully echoed.
There followed the announcement
of a US-EU trade deal. EU exports to the US would be subject to a 15 per cent
tariff while the EU would remove all tariffs on US industrial goods. The tariff
of 50 per cent on the EU’s exports of steel, aluminium and copper would stay.
Further, the EU has committed to buy $750 billion of US energy over the next three
years and to invest $600 billion in the US over President Trump’s term. In the
phraseology of the Second World War, it was “unconditional surrender”.
Mr Trump’s detractors had warned
of the dire effects of his brand of protectionism. The US would face higher
inflation and lower growth. Equity and bond markets would tumble. The global
economy would come crashing down.
None of these forecasts has come
true. In its July 2025 update for the world economy, the International
Monetary Fund (IMF) raised its forecast for
2025 by 0.2 percentage points to 3 per cent, relative to its April 2025
forecast. That’s the rate at which the world economy has grown since 2011. As
for the US economy, the IMF has revised its forecast for the US upwards to 1.9
per cent, from 1.5 per cent in its April forecast. That doesn’t look at
all as if the US economy is hurting from Mr Trump’s policies.
The American equity market is
close to its record levels of the past five years. Yields on government bonds
are below those in January 2025 when Mr Trump took over, and broadly in line
with bond yields in 2023 and 2024. Inflation rose to 2.7 per cent in June,
hardly the terrifying level it was projected to reach.
Analysts are now trying to tell
us why things have panned out very differently. Inflation staying low? American
importers stockpiled goods in anticipation of higher tariffs, so the tariff
increases are yet to translate into higher inflation. That may be true of
current inflation, but why have forward-looking bond yields not moved up?
Mr Trump’s critics conveniently ignore the role of oil prices in
containing inflation. Brent crude oil prices are at least $8 below those a year
ago- and Mr Trump is keen to drive them down even further.
Financial markets not rattled?
That’s because markets had expected much higher levels of tariffs and are
relieved at the levels at which these have settled. Well, the present level of
tariffs is seven times the level before Mr Trump took office! Stock
prices are sky-high? That’s because of the Artificial Intelligence (AI) frenzy. But the AI frenzy was known when
commentators were warning us that Mr Trump’s tariffs would cause a meltdown in
equity prices.
The Economist has been at the
forefront of those castigating Mr Trump for his wayward ways and warning of the
terrible consequences that will follow. It has now come up with an explanation
for why apocalypse hasn’t happened yet.
The world economy, it contends,
has a better capacity to absorb shocks today for a variety of reasons. Supply
chains have become more efficient and resilient; changes in oil prices are less
unsettling because a more diverse supply of energy is available; firms have
become more adept at dealing with shocks; the services economy is less susceptible
to shocks than an industrial economy; and governments are quick to take
measures to cushion the economy from shocks. Capitalism has produced a “teflon
economy”. The analysis begs the question: If the global economy is so
resilient, why has The Economist got worked up about the disruptive effect of Mr
Trump at all?
As far as Mr Trump is concerned,
his tariffs are bringing him higher revenues while protecting American industry
and getting foreign firms to invest and manufacture in the US. All this without
destabilising the financial markets. It’s no surprise that the torrent of
criticism Mr Trump faces has left him unfazed. Mr Trump sees himself as a
winner, not a whiner-- and that’s not a minor difference.
