American voters love Donald Trump for his disruptive volatility. But this time, he seems to have bitten off more than his countrymen can chew. Markets around the world have been spooked by Trump slapping tariffs on both friends and foes. Though he has paused action against Mexico and Canada till next month, he has gone through with a 20 percent impost on China. India too is in line for a hit from April 2. These signals, together with Trump’s refusal to rule out a recession in the US, sparked Monday’s meltdown in the US that shaved off $1.75 trillion. The tech-heavy Nasdaq suffered the sharpest single-day decline since September 2022, with Tesla shares being the heaviest drag. Both the Dow Jones Industrial Average and the S&P 500 plunged almost 3 percent.
Trump believes this is transitory turbulence and, in the long run, the US stands to gain billions of dollars from tariffs and the revival of the ‘rust belt’ industries it lost to China, Mexico and other cheap-labour hubs. The market fears the opposite. Tariffs will make imports and local manufacturing more expensive, and slow down consumer spending, the heart of the US economy. While the American economy has repeatedly belied predictions of recession, there are some new, worrisome tell-tales. The job market has slowed. Consumer spending is falling and consumer confidence is the lowest since last August. Other indicators such as credit card dues soaring to $1.21 trillion and late payment on auto loans ballooning also bode ill.
Trump tariffs are now the strongest headwind against global economic growth. Reversing the efficient global distribution of production will hurt consumers everywhere. As for India, a recession or even a slowdown in the US will have serious repercussions. The US is India’s largest trading partner, clocking nearly $130 billion in bilateral goods trade in 2024; more importantly, we logged a trade surplus of nearly $90 billion last year. India’s tech industry is virtually joined at the hip with the US and any slowdown there will result in job losses at home and lower remittances. There is still time to learn from China: the best way forward is to build an economy on high investment leading to higher consumption at home.