If anxiety about the future of the world economy is trumping (literally!) other thoughts, you are probably not alone. In a world economy worth $123 trillion, global trade accounts for nearly a third of the value. Those $35 plus trillion dollars are at risk. The prime minister of Singapore, Lawrence Wong, warned that global trade wars lead to global conflicts. His fears probably should be those of everyone who is not imposing that trade war.
The big picture
The United States, China and Germany largely dominate the $35 trillion worth of global trade at risk. China is the biggest exporter of manufacturing goods and one of the biggest importers of services. However, it has the highest trade surplus in the world (higher overall exports over imports). On the other hand, America has the highest trade deficit in the world (higher imports over exports). That means, over the past few years, Americans have been the world's biggest consumers, and the Chinese have been the world's most prominent manufacturers and exporters. President Trump's new tariff regime will disrupt the existing global trade system. The new system seeks to cut down on US imports and suddenly expand the scope of US exports of goods and services. For that to happen, global companies must set up factories and offices in the US.
However, under free trade practices, goods and services are manufactured in places where they can be produced at the cheapest. That reduces the cost for consumers. Since the Second World War, American consumers have benefited immensely as goods and services moved freely. The size of the US economy has only grown more significant than ever. The US dollar is the world's reserve currency, and American government-issued treasury bonds are the safest assets in the world. The readjustment in global trade will likely shake the existing trade and finance structure.
India will be affected
While India accounts for barely 4% of the global trade, the intensity of India's engagement with the world is more significant than in previous decades. India will not remain insulated from a broken global trade system. A slow growth in America will further trigger a slowdown in countries that depended heavily on US exports. While India is a middle-income country, it has problems like a rich country. It has a trade deficit due to imports of commodities like oil and gold for domestic consumption. India needs exports to grow, maintain economic growth momentum, and balance trade.
However, if global demand slows and exports slump, India's economy will slow down. Share prices of export-oriented companies like software services, leather, footwear, jewellery, diamonds, and many other sectors plummeted over the past four weeks in anticipation of the new US tariff regime. India's relative advantage is primarily due to a large domestic market. Financial services, consumer goods and technology continue to drive consumption-led growth. There is a chance that other countries with excess capacity may start to flood Indian markets with cheaper goods. It is a risk that the Indian government will have to monitor closely. Keep an eye on the bilateral trade deals India negotiates with countries like the US, UK, Europe and others.
Your money
The next few months would be about adopting a risk-averse investment strategy. You should focus more on conserving your hard-earned money. If you are confident about your future income, you can buy shares in fundamentally strong companies as they fall. If you are new to investing, you must diversify your savings into multiple asset classes like equity, gold and bonds. Getting professional help to make an appropriate asset allocation may be a good idea. Investing is fraught with risk and uncertainty. This time, it is on an unprecedented scale.