Global markets are reeling from the escalating trade war sparked by President Donald Trump’s irresponsible rhetoric and unpredictable behaviour, harming even America’s staunchest allies. His erratic and unrestrained statements are sending shockwaves across the world, and no one seems to know which country or institution will be the next target. Stock markets across the world are reeling from shocks of his tariffs as much as his deranged statements and global trade is trying hard to readjust to the new normal of uncertainty.

The USA, China, and Canada are imposing tariffs on each other, sparking chaos in global markets. No country, not even India, whose trade volumes with the USA cannot be of much consequence to that country (2.7 per cent share of US imports and 2 per cent of US exports, in comparison with China’s share of 14 and 7 per cent respectively), can remain completely immune to the global turmoil that Trump is triggering. Now it is beginning to affect the US economy itself, raising fears about higher inflation and slower economic growth, loss of manufacturing jobs and weakening of the dollar, against Trump’s avowed objectives of a buoyant US economy, stronger dollar and jobs. His tariffs have sparked concerns that rising costs and trade disruptions could slow growth and depreciate the dollar.

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The Federal Reserve’s stand of no further easing of monetary policy has further stressed the dollar. On March 7, the US Dollar Index (DXY) had already declined to 103.9 from its peak of 110.0 on 13 January 2025, one week before Trump took over. Unpredictability of his policies and their broader economic implications are raising serious concerns about an impending recession, almost paralleling the Great Depression of the 1930s. Reports indicate that US consumer spending is already slowing because of rising prices of imported goods, and small businesses which contribute significantly to manufacturing are struggling with higher input costs. It is unlikely that the USA can sustain a prolonged trade war on all fronts for a long time.

The Smoot-Hawley Tariff Act of 1930 ~ the legislation that significantly contributed to the Great Depression ~ offers some insights. Sponsored by congressional representatives Reed Smoot and Willis Hawley to protect American farmers and in – dustries by imposing high tariffs on imported goods, it has since become a case study on how protectionist policies can backfire and lead to economic isolation, pushing a country deeper into recession. Under that Act, USA imposed high tariffs on over 20,000 imported goods, sparking immediate retaliation from Canada, Britain, France and Germany. The results were devastating not only for these countries but also for international trade. By 1933, global trade had contracted by over 60 per cent, causing mayhem all over.

The USA, hitherto a major exporting nation, lost half its exports, leading to widespread business failures in key markets for agriculture, machinery and manufactured goods. With trade and demand plummeting, farmers and factory workers started losing jobs, and there were massive layoffs, especially in large labour-intensive and export-dependent industries like steel, textiles, and automobiles. Steel production dropped by over half. By 1933, unemployment in USA had skyrocketed to 25 per cent. As car sales declined by almost 50 per cent, Ford laid off 60 per cent of its workforce by 1932. Farmers were the biggest losers ~ before the tariffs, US farmers exported large amounts of wheat, corn, pork, and cotton to Europe.

After Canada and Europe retaliated by placing high tariffs on US farm products, US farmers lost foreign markets, and prices for their crops plummeted by over 60 per cent. Wheat prices fell from $1.05 per bushel in 1929 to just $0.38 by 1932 ~ causing major bankruptcies among farmers. USA was a major exporter of cotton and wool textiles to Europe and Latin America, but European tariffs decimated US exports. Cotton exports fell by 60 per cent, devastating Southern cotton farmers and mill workers, and leaving its once vibrant textile industry gasping for breath.

Overall industrial production fell by half, 9,000 banks failed because of defaults from struggling businesses that couldn’t repay their loans. Naturally, all this created tremendous tension in the relationship between the USA and its European allies. The prolonged US depression and global economic crisis delayed international recovery and increased human suffering. Economists today widely view the Smoot-Hawley Act as a major policy mistake that deepened and prolonged the Great Depression ~ a cautionary example of the unintended results of protectionist trade policies that can backfire in an interconnected global economy. The 2025 world economy is a million times more interconnected and interdependent than in the 1930s, and Trump has no idea about the consequences his policies can wreak upon the world. In his first term, he imp – osed tariffs on steel and aluminium but exempted major US alli – es. Now he has imposed tariffs on over $360 billion worth of Chi nese goods and a 25 per cent tariff on steel and aluminium imports from all countries. This time, however, there is no exem – ption. The US is the world’s larg – est importer of steel, it imports about 23 per cent of its steel from Canada, Brazil, Mexico, South Korea, Japan and Vietnam; Canada is also its largest supplier of aluminium. Some of these countries have been US’s steadfast friends and allies since the last century.

But Trump believes that in international relations, there are no friends or allies, only national interest. He has now imposed 25 per cent tariff on all goods imported from Canada and Mexico, and is threatening every country in the world with reciprocal tariffs, treating WTO rules with utter disdain. The other countries are unlikely to kowtow to Emperor Trump and his whims without any whimper of protest. China has already imposed retaliatory tariffs ranging from 10 to 15 per cent on many American goods, including agricultural and farm products, and revoked licenses of some US firms. Trump is apparently unleashing all these disruptions in order to reduce the US trade deficit and bring back manufacturing jobs to the US, but those jobs are unlikely to return.

During his first term, China retaliated with tariffs on $110 billion worth of US goods, targeting soybeans, automobiles and technology that caused losses to American farmers and manufacturers. Between 2018 and 2020, US farm bankruptcies surged by 20 per cent, and global trade growth slowed from 5.7 per cent in 2017 to 1.2 per cent in 2019. US companies using Chinese materials faced higher costs, leading to higher US consumer prices on electronics, cars, and appliances. Now, the consequences of Trump’s tariffs are likely to be far more devastating, and another global recession may be looming. On India’s tariffs also, ever since PM Modi’s visit, almost every day Trump has been making irresponsible statements against India.

Disregarding facts ~ facts have never been among his favourites ~ he has charged that India has been levying massive tariffs on US products, so much so that no US goods can be sold here, and that now India has “agreed to cut their rates way down because somebody is finally exposing them for what they have done”. He is also applying pressure on India to make all defence purchases from the USA, holding out a carrot of F35 advanced stealth fighters. India must never succumb to such brazen blackmail. For one thing, the US has never been a reliable and responsible ally. Henry Kissinger said, “It may be dangerous to be America’s enemy, but to be America’s friend is fatal”, and history bears testimony that nations closely aligned with US interests may well face abandonment by the US, as Europe is currently learning at a great cost. Trump’s unstable pronouncements and his erratic policies will have devastating consequences; any US economic downturn caused by his tariffs will pull down all allied countries into a steep, unstoppable slide.

Instead, the most pragmatic way would be to isolate the USA, without getting into any direct confrontation. Negotiations are currently underway for a bilateral trade agreement with the US that may or may not bring us benefits, but that should not prevent mending our ties with China and resume Chinese investments. The world is now gradually moving towards a non-US collaborationist regime. In the last three months, the EU has con – cluded three new trade agreements: first with Mercosur, the largest South American trading block comprising Brazil, Argentina, Paraguay and Uruguay, concluding 25 years of negotiations to create the world’s largest trade zones linking markets with 850 million people. It was followed by Free Trade Agreements (FTA) with Switzerland and Mexico.

The EU is also negotiating an FTA with India with an urgency not seen before; so is Britain. India has bilateral FTAs with many countries, including Australia, Japan, Malaysia, South Korea, Singapore, UAE, Sri Lanka and Mauritius. It has regional FTAs with ASEAN and European Free Trade Association (EFTA) which includes Switzerland, Norway, Iceland, and Liechtenstein. FTA negotiations are underway with the Gulf Cooperation Council (GCC) that includes Saudi Arabia, UAE, Qatar, Oman, Kuwait, and Bahrain. India is also negotiating with Mercosur to convert its existing preferential trade agreement to a full FTA.

Negotiations with Canada were derailed by Trudeau’s tantrums, but with the change in leadership there, these should resume. India must forge mutually beneficial trade relationships with as many countries as possible. The only way to secure our future against Trump’s tariff wars is by integrating ourselves more with the economies of the rest of the world ~ they would also be equally eager to expand their footprints on the vast and deep Indian markets. A world less focused on the US is becoming increasingly likely, and Trump’s trade conflicts have hastened the shift towards a truly multipolar world.

(The writer is a commentator, author and academic. Opinions expressed are personal)