
It was a manic Monday for global markets as Donald Trump kept his promise of imposing new tariffs on China, Mexico and Canada. The European Union is under threat, too. The fear of a global trade war and a slowdown in manufacturing roiled sentiments everywhere. The Sensex slumped 750 points before recovering to close 319 points down; Asian stocks fell the most in nearly six months. The rupee fell to a lifetime low of 87.185 against the US dollar, while the Canadian dollar sank to its weakest since 2003. Chip exporters and Japanese carmakers were among the biggest losers. Oil prices jumped on the disruptive news.
By Tuesday, when the new tariffs were to kick in, the mood had changed. Trump, after all the sabre-rattling, opted for some midway deals. The markets celebrated by shooting up. After a call with Mexico’s President Claudia Sheinbaum, Trump announced he was pausing the 25 percent tariff on her country for a month in exchange for Mexican national guards preventing fentanyl from crossing the border. Canada, too, agreed to push harder against drug cartels. Panama, under threat of losing its canal to the US’s might, said it would give free passage to American ships and exit China’s Belt and Road Initiative. It dawned on many that Trump’s punitive measures were not written in stone; they were to be used as fungible bargaining chips.
Perhaps there is some sobering rethink in the Trump administration too, after both Chinese President Xi Jinping and American chambers of commerce warned that there are no winners in a trade war. The US imports 40 percent of its needs from the three target countries—China, Mexico and Canada; and all three have pledged to impose matching tariffs on US goods. One way or another, Americans would end up paying more for common items including fruits, meat, cars, toys and clothes. Trump seems to be listening to his constituents who are against such price rises. But the tariff war is not yet over. In retaliation to the 10 percent tariff on Chinese goods, Beijing has announced levies on US coal, oil, liquefied gas and luxury cars. Only the first few shots have been fired in this escalation. Amid such unpredictability, it is best if India plans well into the future to guard against supply and currency disruptions.