What does Trump hope to achieve through his tariff wars?

1. He wants to progressively reduce, even perhaps eventually to eliminate the US’s huge current account trade deficit resulting from its imports of commodities of goods and all kinds of services far outstripping in value the US’s exports. In 2024 this deficit amounted to $1.1 trillion.

2. He wants to encourage more productive FDI in the US and discourage outgoing investment by US investors and producers thereby hoping to generate much greater output in manufacturing and increasing self-sufficiency in production of key raw materials. He hopes that this will result in more jobs domestically. In aiming to carry out mass deportations of ‘immigrants’ that provide crucial labour in so many spheres and in the firing of huge numbers of public employees Trump is, of course, worsening the unemployment situation that he says he wants to correct.

3. The revenue from tariffs that importers in the US would have to pay to the government will help offset the tax cuts he is making and going to make for the already rich in the US.

4. Trump is carrying out a significant break from the neoliberal orthodoxy pertaining to global multilateral trade as embodied in the Washington Consensus that has reigned for around four decades. A particular aim is to economically weaken China by pushing US and Western TNCs and investors to move out of China and domestically “reshoring” and “friendshoring” their activities. This requires bullying politically-militarily allied governments in Europe, Japan, Australia to reduce their tariffs for US exports in return for giving some kind of quid pro quo (negotiated on basically US terms) to enable their corporations to export and invest in the US.

If these are some of the key aims of the Trump Administration what are the likely problems that it will face.

1. There are globally already a lot of established production and value chains that cannot be dismantled or reorganised quickly. The longer this takes the more difficult it will be for Trump to show at home that his economic efforts at MAGA is working.

2. Producers want not just that labour costs be comparatively low but that such labour meets necessary skill levels and is disciplined and obedient-some of the key attributes secured in authoritarian China. Furthermore, there are a number of other countries in Southeast Asia and elsewhere that are already competing with China as sites for attracting FDI for commodity production in goods and services. Even many US TNCs may prefer relocation there than in the US, denying even in the longer term the scale of “reshoring” that Trump desires.

3. Moreover, China can fight back. (i) It provides the biggest market for US agricultural exports which Trump will not want to lose. (ii) It also has rare earth minerals on a very large scale that are greatly needed by the US and Europe. (iii) China can more successfully than most other countries shift her exports to other markets besides the US. China’s exports to the US account for only 14% of its total exports and some 145 countries currently trade more with China than with the US as compared to 2001 when this applied to only 30 countries. (iv) China holds some $750 billion in US bonds.

So Trump, pressured by a major section of US capital, may well go in for a deal with China that allows both sides to claim a victory. However, there will be some losses for China no matter the final outcome of trade and tariff negotiations between it and the US. China is ageing fast and its pool of skilled low cost workers is declining while other nearby countries e.g., Vietnam, are increasingly competitive when it comes to maintaining skilled and even lower cost labour for attracting FDI and external producers.

4. Trump’s tariff policies will in all likelihood create more suffering within the US. There is great uncertainty about its domestic outcome. Higher priced imports accompanied by insufficient scale of increase in domestic production can mean stagflation even as a significant trade deficit remains that has to be covered by attracting foreign holders of US government bonds through maintaining high interest rates. This then sets the basic level of interest rates in the US economy as a whole thereby weakening private sector incentives to invest in domestic production. As it is, so much of financial sector investments is carried out in the search for making money from speculating in the domain of fictitious capital (outside the domain of commodity production and investment) and, given this uncertainty, this kind of unproductive financial activity that constantly redistributes profits and debt holdings rather than increasing the overall pool of surplus value/profits will continue, even at the global level.

What about India?

1. For all the Modi government’s bravado about standing firm against Trump and finding successful alternatives to ensure growing prosperity, this is not to be taken seriously. The US is the single most important market for India’s exports accounting for some 17% of total revenues. This is much more than what India gets from all the EU countries to which it exports goods and services. India wants to negotiate better tariff and trade terms with the US but whether and what comes out eventually will be determined by Trump who needs India less than vice-versa.

2. India will continue to have global buyers in certain areas such as select IT services, refined oil and mineral products, smartphones, gold and diamond jewellery but when it comes to labour-intensive products there are already powerful Southern country competitors. India’s earlier trade surplus with the US now under threat, substantially compensated for its large deficits, for example, with China.

3. As for attracting foreign capital in 2023-24 three tax havens used for round tripping of Indian capital---Mauritius, Singapore, Netherlands---accounted for 55% of total FDI and equity inflows. In the Indian stock market as of March 2024, the share holdings by value are as follows: Promoters 50.31%, Foreign Institutional Investors (FIIs) 22.05%, Domestic Institutional Investors (DIIs) 17.19%, Public 10.45%. Of this total the biggest chunk is held by private Indian corporate investors at 32.7% then comes FIIs, then government at 11.2%, followed by Individuals at 9.5% and Domestic Mutual funds at 9%.

The point is simple. Greenfield and productive foreign investment outside certain sectors (mostly, but not only, in services) is not rushing to come into India is certainly not for expanding its manufacturing sector with all its important backward and forward linkages. Indian labour costs are competitive but not when it comes to having acceptable and varied skill levels as compared to countries in other parts of Asia where governments have invested in creating much higher average levels of health and literacy and vocational training for its workforce. Necessary large scale domestic investment in manufacturing especially for the benefit of micro-, small and medium (MSME) enterprises is anyway absent.

4. For all the current talk of raising Indian self-sufficiency as a response to the Trump’s tariff policies and to the effective erosion worldwide of neoliberalism’s earlier phase of a WTO regulated multilateral trading system, there is no way that the Indian economy will resolve its existing problems of eco-insensitive development, large-scale absolute poverty, shocking and rising inequalities of income and wealth, growing unemployment of the formally educated and deepening the misery of the non-skilled and low-skilled workforce.

The government’s determination to move towards corporatisation of agriculture remains. The earlier farm laws were finally repealed but there is no serious move to provide the level of MSP demanded by the farmers or their other positive demands let alone addressing the problems faced by the agricultural proletariat and semi-proletariat. The new labour laws which aim to weaken and destroy unionisation will further increase the precariousness of the urban and semi-urban workforce, further expanding the informal sector and increasing its precariousness. The overall scale of privatisation of healthcare and education is huge and expanding and is guaranteed to only deepen the existing reality of two very different “Indias”.

RADICAL SOCIALIST