A cartoon showing Donald Trump and Xi Jinping arguing into the twenty-second century, and progressively levying tariffs of a billion percent on each other, captures the essence of present developments. Probably, world leaders have to be reminded that levies beyond a point are meaningless ~ guaranteed only to bring international trade to a standstill.

High tariffs will result in a debilitating shortage of manpower and electronic equipment in America, and its economy and social life will unravel; China would have a surfeit of machinery and electronics, but would lack basic food items and entertainment; poorer countries would simply struggle for survival. Apparently, Trump is trying to fulfil his election-time promise of levying tariffs on countries which were ‘ripping off America.’

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The timeline of Trump’s tariffs, a precursor to a full-blown trade war, is given in the chart: The ostensible justification of Trump’s high tariffs, is a desire to rejuvenate the US manufacturing sector, and reduce the country’s huge trade deficit of US$ 1 trillion. However, according to classical economic theory, trade deficit is not a bad thing, particularly for the US.

A trade deficit shows that foreigners are sending more goods and services to the US than what the US is sending abroad, making Americans prosperous at the cost of other countries.

Payment for US imports costs little, as it is made in US dollars, which the US prints freely. Since the dollar is the primary currency for world trade, and wealth in a secure form, so foreigners hold on to their dollars. Additionally, foreigners use their dollars to buy US bonds and shares, supplying capital to American companies. President Trump’s plan to eliminate the trade deficit will reduce imports, and thus dent American prosperity. Also, it will reduce the capital available to US corporates.

Again, according to economic theory, world trade rests on comparative advantages; each country produces and supplies to other countries such goods that it can produce at lowest cost. In this way, all countries get goods at the cheapest cost, raising standards of living all around. Conversely, high tariffs raise the cost of goods for all countries and restrict the movement of goods across national borders. Thus, by imposing extortionate tariffs, even before completing 100 days in office, Trump has upset the world economy. The share of international trade in global GDP being close to fifty-nine percent, global GDP will fall significantly, once international trade reduces as a result of Trump’s ill advised policies.

One may well wonder, given Trump’s erratic actions in many spheres, whether he is aware of what he is doing? What Trump has done, and what he is attempting to do, appears in black and white in Mandate for Leadership: The Conservative Promise, published by the Heritage Foundation in April 2023. The adherence of Trump, to the Heritage Foundation playbook, is so close that the foundation had to clarify, on its website, that Project 2025 was its brainchild, and not that of Trump. The major policy changes suggested in the Heritage Foundation book, are as follows:

* Secure the border, finish building the wall, and deport illegal aliens

* De-weaponize the Federal government by increasing accountability and oversight of the FBI and Department of Justice

* Unleash American energy production to reduce energy prices

* Cut the growth of government spending to reduce inflation * Make federal bureaucrats more accountable to the democratically elected President and Congress

* Improve ed ucation by moving control and funding of education from bureaucrats directly to parents and state and local governments

* Ban biological males from competing in wo men’s sports However, Trump’s stance on tariffs is uniquely his own. Frequent backtracking on tariffs, particularly his postponement of reciprocal tariffs by 90 days, after a blood bath on American stock and bond markets shook public confidence, shows that Trump had not thought through the effects of his egregious actions. This conclusion is reinforced by Trump’s decision of postponing tariffs on smartphones, computers and electronic items being imported from China.

A close parallel could be the demonetisation exercise in India in November 2016, when circulars were issued almost daily, to address unforeseen challenges. After these mis-steps, Trump gran – diosely declared: “…the bond market had a little moment but I solved that problem very quickly. I’m very good at this stuff.” His acolytes saw Trump’s stepping back as the ‘greatest master strategy.’ However, Wall Street Journal had an entirely different take: “The reality is that Mr. Trump is making it up as he goes, and it would help if he had an actual strategy to deal with China in particular.” Be that as it may, the world has ninety days to respond to the ‘reciprocal tariffs’ proposed by Trump.

Waking up to the adverse consequences that could follow, the Trump administration has embarked on an aggressive mission of finalising 90 trade agreements in 90 days. Since trade agreements are complicated documents, typically taking months to conclude, a positive outcome within the deadline is unlikely. Coming to our own interests, the US is India’s largest trading partner. With bilateral goods trade at US$ 129.2 billion, and a balance of US$ 45.7 billion in our favour, Trump’s new tariffs are of vital concern to us. Unfortunately, high custom duties levied on US goods by India, are in Trump’s cross-hairs, who has described India as a ‘tariff king.’ Commerce Minister Piyush Goyal visited the US for a week in March to seek a reprieve from tariffs.

Goyal could not make much headway, he got to meet the US Trade Representative Jamieson Greer, but not the Trade Secretary Howard Lutnick. A Bilateral Trading Agreement (BTA) was proposed, but nothing concrete has emerged so far. According to National Trade Estimate (2025) authored by the US Trade Representative: “India maintains high applied tariffs on a wide range of goods, including vegetable oils (as high as 45 per cent); apples, corn, and motorcycles (50 per cent); automobiles and flowers (60 per cent); natural rubber (70 per cent); coffee, raisins, and walnuts (100 per cent); and alcoholic beverages (150 per cent),” while US tariffs on Indian goods are much lower.

After Trump started imposing his tariffs, India reduced import duties on some 8,500 industrial items. India is also considering the US demand to reduce import duties on American farm products. To reduce the trade deficit, India has promised to buy more American oil.

A winwin situation can emerge if both sides reduce import duties to reasonable levels. However, for India, a compromise would require some sacrifice of interests of big business and farmers ~ both politically sensitive, valuable vote banks. The final word on tariffs was probably said by the Canadian journalist, Mark McKinnon: “As history has repeatedly proven, one trade tariff begets another, then another ~ until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed.”

(The writer is a retired Principal Chief commissioner of income tax)