MAY FOCUS 2025

TRUMPONOMICS & THE WORLD AT LARGE

Donald John Trump, is probably the only person and an issue that made ISSUES & CONCERNS, repeat the Focus on the man, in less than 4 months. It was in January 2025 that I&C carried the Focus “DONALD J TRUMP: The New U.S. President”, and we are in May, in three intervening months, the man and the U.S. President forced himself into the Focus, for the kind of words and actions that followed from the 47th occupant of the White House. He is also the 45th President of U.S., having lost his bid for being 46th President in 2020. He attempted yet again in 2024 and was successful. After his first term, reportedly “Scholars and historians ranked him as one of the worst president of the United States of America in the entire history of U.S. Presidency”. Be that as it may, Americans supporting the Republican Party elected him to contest the U.S. Presidential election in 2024 and he won against Democrat Kamala Harris. So clearly Americans by and large want him to be at the helm of affairs of the country, since his campaign rhetoric has always been “Make America Great again”. Prima facie there is nothing wrong to be patriotic, but in every vision to be translated or realized there is something as a ‘modus operandi’. Ends does not always justify means, but it must, in the long run, to be a viable model of development and therefore of governance. Means must be clean to achieve the end as visualized. Donald Trump was known to be a difficult child with all kinds of stories floating around. But way back in 1988, that’s when he was about 42 years, in an interaction with Oprah Winfrey, he gave clear glimpses of his thoughts on how U.S. was being used as a dumping yard by many countries. Talking to Oprah, he is reported to have remarked “Something is going to happen over the next number of years with this country (U.S.) because you can’t keep going on loosing 200 billion and yet let Japan come in and dump everything right into our market. I get tired of seeing the country ripped off”. Clearly it was a presidential stuff, 28 years before he had his first shot at the White House. So no wonder he began with a bang as he started his 2nd term at the White House. Here it is pertinent to quote a newspaper editorial, when he got elected for the second time “For continuing stability and a predictable world order, Democratic nominee Kamala Harris was widely reckoned to be better, but the white, inward looking Americans put their trust in the big talking real estate tycoon. For the next four years the world will have to do business with someone for whom everything is transactional”, while adding “The maverick tenant of the White House for the next four years, hopefully not prove to be the proverbial ‘Bull in the China shop’” and sadly and unfortunately, even for the U.S, it is becoming increasingly clear, a case of “Bull in the China Shop. Increasing tariff on imports, across the spectrum, was his considered weapon to hit back, as a tit for tat, against tariff of those countries who have imposed high tariff on imports from the U.S. However this time round, it was China which faced the brunt of his fury not Japan, since China was seriously trying to dislodge U.S. as the lone superpower. But sadly in his relentless but misplaced drive to make America great again, he has even declared war on Universities. Trump administration is slashing research grants, holding federal scholarships and dismounting diversity initiatives. Earlier under DOGE, Musk had created huge social unrest in the U.S. Some of the print media headlines tell the gravity of the Liberation Day announcements. “Trump doubles metal tariffs on Canada to 50%, escalating trade war”. “Trump government shows red flag to green card holders’ activism”. “Trump rule has restored the atavism of might is right”. “Trump tariffs present a great opportunity for tariff reforms”. “Trump done the Sherrif hat”. “Glimpse of World Economy post Trump trauma”. “US & China rift widens amid insults and mind games”. “China ready for any type of war”. “India charges 100% tariff on agris goods, time for reciprocity: WH”. “U.S. government to review Harward funding over ‘anti-Semitism’ in its campus.” “Democratic led states sue to block Trumps $ 11 billion health funding cut move”. “Cornel student protestor facing deportation leaves the U.S.” “India to slash tariffs significantly: Trump”. “Indian Chess Board moves on tariffs”. “Sensex plunges 1390 points over tariff fears”. “Trumps tariffs target all” “Indian tariff game plan: Diplomacy over retaliation”. “Angry protestors assail Trump & Musk in ‘Hands off!’ rallies”. “1400 Demonstrations across US to save jobs & savings, Rights & Freedoms”. “50 countries in touch to start trade talks, says Trump advisor”. “Tit for Tat tariffs with India from April 12: Trump”. “Harward Professors sue Trump administration over threat to cutting funding”. These were some of the innumerable headlines that hit the global media, since Trumponomics mania hit the public space. (However please note that they are not in order of sequency reproduced only for information.) ‘Liberation Day’, is a reference to 2nd April, when the reciprocal tariff as threatened by Trump administration likely to kick in. However, it remained unclear to the world at large, the exact extent and scope of the reciprocal tariff to be imposed and their precise direction. However on April 2, U.S. President Donald Trump escalated his trade war to new heights by announcing final tariffs that are significantly more aggressive than what indication he gave initially. His latest move includes a sweeping 25% across the board tariff on import, as well as country specific tariffs, as a result China will be hit with 54% tariff, European Union 20%, India 26%, Vietnam 46%. Trump is taking these actions since he thinks its necessary to protect American manufacturing and to reduce trade imbalances. While what he is doing may be partly justified for the historical wrongs America has suffered, it can have more harm than good. There are many American economists and financial analysts who have warned him of the consequences of rash measures. As of now he appears unfazed. However the likely inflation due to this irrational tariff can truly decrease the purchasing power of average Americans which can affect the economic growth. What Trump is not realizing is, by portraying the world’s most powerful and wealthiest nation as a victim, Trump risks isolating U.S. from its trade partners and close allies. Nearly half the number of finished cars in the U.S. are imported and those assembled locally contain 60% of parts made overseas. Auto levy had dealt an additional blow to Washington’s three largest trading partners. Canada, Mexico and China that commentators say are among the highest in decades. Expectedly China is on a retaliatory mode. It has increased its tariff on Chinese import of U.S. goods by 34 % which immediately impacted the global stock market. This is trade war. Since China has initiated investigation into many American companies having dealing in China to put them under listed “unreliable entities”. That’s going to hurt U.S. interest. Resultant stock market turmoil cost U.S. investors in trillions of $ in market wipe outs. This was a disaster eminently avoidable. But Trump being Trump, uncertainties are booming all over. Buoyed by his convincing election victory Trump decided to take matters into his own hands riding roughshod over stated government policy and imposing sweeping spending cuts. Disruption of social security administration has resulted in turmoil. Shutting down US AID, which provides small and fragile democracies abroad is a reversal of decades old commitment to democracy. Axing of thousands of jobs is causing nightmares among health workers. Americans are now pushing back against the policies of Trump who has in a little over 2 months since his inauguration as U.S. President managed to disrupt the world order and cause turmoil in the USA. As a reaction to this ‘Liberation day’ declaration, the US and global stock markets cratered. The S&P 500 and Dow Jones lost about $12 Trillion in the following days. A few days later Trump announced a 90-day pause on most additional tariffs beyond his 25 % tariff for almost all countries. The exception was China. Trump raised the rate to 125%. China retaliated and a few days later Trump raised it to 145%. The market soared, the Dow gained 3,000 points, only to drop a few days later. The charts looked like Trump’s signature. When asked why he announced the pause, he replied, “Well I thought that people were jumping a little bit, out of line, they were getting yippy….” We all know even prior to becoming President, Trump has often said, that countries take advantage of the Free Trade Policy of the US, while imposing barriers to importing goods from the US. While he advocated Reciprocal Tariffs which would be specific to each country, he imposed an across the board tariff, which he later paused, except for China. The US has a population of about 350 Million, and is a lucrative market that all countries vie for. The pause got countries lining up to negotiate while Trump focused on China. The US is a slave of and addicted to China for cheap imports. The US has been wanting to decouple from China for a long time. This has been long overdue. Over the years the US has lost its manufacturing base to China. At the same time the world is transitioning from Globalisation to Localisation. PM Modi has been pushing Atmanirbhar. That is the trend. For the US, bringing back manufacturing may not result in a booming job market. Using automation and machine learning manufacturing costs will be reduced and the goal is to out compete China. The tariffs assist the transition. Trump is waging economic war against China. As in any war there are twists and turns and things can get chaotic. They sure have. Trump is taking a big Political risk. It may succeed or may not end well. The decoupling has to be done with a Jatka (swift stroke). There is no Halal (bleeding the goat) alternative. The US consumer is going to be upset. Also there are massive US interests and investments in China. The China plus one, was the first salvo for US capital and interests to move out. This is a full scale onslaught. China is still an export oriented economy. Domestic consumption is inadequate. China manufactures stuff the world wants. They will seek new markets to compensate the loss of the US market. There will be short term pain for both the US and China. . Chicken Littles have been screaming, the Sky is falling on China. China is too big to fail. China has close to $T in US Treasuries. They can pay for imports using $ or Yuan. They will print their way out of this downturn. Neither side feels the need to back down. Besides the Tariff Natak, the Elon Musk led DOGE initiative is being protested vociferously. Unless Trump pulls a rabbit out of his hat, he may loose the House majority in 2026. If that happens, he will be a lame duck for the rest of his term. With reshares to China, what Trump is attempting to do is eliminate relying on China. It appears that he is going about it the wrong way. Whether he succeeds or fails, time will tell. He is attempting what no US President has dared to do. Many have spoken about it. None have acted. That said isn’t Bharat too desires to eliminate her reliance on China? However, when all is said and done, the irony is that Trump is destroying the very image of America by his irrational moves not only on tariff but slashing government funding to institutions of higher learning, the citadel of science and technology. That is rather sad. As a matter of fact, the latest Ipsos poll by ABC News & Washington Port, Trump has the lowest 100 day job approval rating of any US President in the past 80 years informs report. There appears to be extensive economic discontent including broad fears of recession. This is bad news for Republicans.

Illegal immigrant Imbroglio

One of Donald Trump’s promises during his campaigning for President was the deportation of the estimated 11 million people who were let in by the Biden administration along with the estimated 10 Million people who crossed into the US over the previous years. Many claimed asylum and are permitted to stay till the court hears their case. Crossing illegally into the US is a criminal offence. Deporting 21 million plus individuals who crossed illegally is a daunting task. To date about a 100,000 have been deported. Judges and cases filed in support of these illegal immigrants are making it extremely difficult for the Trump administration to deliver on their promise. Currently, the focus is on deporting individuals who have been convicted of crimes and members of Gangs like MS13 and Tren de Aragua. One such deportation involves an El Salvadorian, Kilmar Abrego Garcia, an alleged MS13 gang member who was deported and imprisoned in El Salvador. More on that below. Bharat is facing a similar issue. The border between Bharat and Bangladesh is porous. Bangladeshis have been illegally crossing into Bharat over the years. Many are employed as house helpers and labourers. Citizens are participating in this activity. Many Rohingyas are crossing as well. Many have been given refugee status. The majority, but for a small number are Muslims. They go to a Mosque, where they are given help to settle. Many have been given Aadhaar and ration cards. It is alleged some have even procured Election Cards. What is the Modi government doing about this? East and West Pakistan were carved out for Muslims. It is only appropriate that this partitioning be honoured and these migrating Muslims be accommodated in the land designated for Muslims. When an illegal Bangladeshi is caught, the local police have no place to send them. If the Modi government is serious in deporting these illegals, then detention centres should be set up in every State. Deporting these illegals after gathering a bus load would be a practical solution. Now back to the Garcia controversy. This case has burgeoned into a political football between the Democrats and Trump, with the former demanding his return. The Democrats have invested significantly in this with a Senator visiting him in San Salvador, followed by four more Congresspersons. Democrats describe him as a law abiding Maryland father of three, (two of them not his biological children). His wife and children are US Citizens. The claim is that he was deported due to a “clerical error”* (explained later) which has been admitted by the Trump administration. The Trump administration also claims that he is an MS13 gang member that has been classified as a terrorist organisation. His affiliation with MS13 has not been agreed to, by the court. Nevertheless, the administration claims deporting him is legal and justified. Meanwhile a “restraining order” surfaced, filed by his wife claiming he abused and beat her. She did not pursue suing him and said they reconciled. It is rather astonishing that a foreign national, who came to the US illegally, is garnering such excessive support and effort from elected members who are demanding his return from his country, due to an admitted “clerical error”* Kilmar Abrego Garcia grew up in El Salvador and crossed illegally into the United States in 2011 at the age of 16 to escape gang threats. He was apprehended in 2019. He was accused of being an MS13 gang member. The allegation was apparently never proven. He was denied asylum but the immigration judge decreed that he cannot be deported back to his country, because he claimed that he faced life threatening danger from gang violence if he returned to El Salvador. He was awarded “withholding of removal status”. The Trump administration did not pursue his deportation to another country at that time. Thus deporting him to his country is considered a “clerical error”. The withholding of removal status allowed him to live and work legally in the United States. The drama started with a judge ordering the plane he was on to return. That order was denied since the plane had entered international air space. The lower court decreed his return should be “effectuated”. The Supreme Court overturned that decree and stated his return should be “facilitated”. The lawyers are now arguing what “facilitation” means. The administration says they have no jurisdiction in San Salvador. The San Salvador President while visiting the US said he had no intention of freeing and returning Garcia. Some legal pundits claim that even if Garcia is brought back, the administration will challenge his “withholding of removal status” claiming it is no longer relevant. San San Salvador which was once described as the murder capital of the world, is now considered the safest place on earth. Either that, or the administration will convince some other country to take him. The standoff continues.

Trump’s Tariff Tantrums Turn into Trade Temors

Points to Ponder, May 2025 President Donald Trump imposed sweeping tariffs on Wednesday, the 2nd of April 2025, with high decibel execution to maximize the perceptional impact among his supporters. But in its wake markets, both in the US and across the globe have plummeted and nationwide protests have already taken place. While we are engulfed by the noise and din of tariff threats and counter threats, it is essential to coolly analyze the likely fall out of tariff hikes for global trade and in particular for the Indian economy. To begin with we need to understand what exactly has Trump unleashed by way of tariff hikes. 1. Trump tariff plan includes a 10% baseline tariff on goods from all countries. 2. ‘Reciprocal’ tariffs target about 60 additional countries. However, the tariffs announced on Wednesday are neither reciprocal nor logical and certainly not based on facts which Trump is adept at distorting, depending on compulsion of the situation. Prima facie, the country specific tariffs are based on half the ratio of bilateral trade deficit to imports. They range from 20% for EU to 46% on Vietnam, with India facing tariffs of 26% and China 34% (in addition to 20% announced earlier). Trump seems to have mastered the “Orwellian Double speak”! 3. There is a climbdown from the tariffs announced on Mexico and Canada. Imports from these countries that are compliant with trade agreement (USMCA) will continue to see no tariff, while non-compliant goods will be hit with 25% tariff. However, non-compliant energy products and potash – key ingredient to make fertilizer used by farmers, will face a lower 10% tariff. Global Fallout: The tariff order has upended multilateral world trade order, unsettled global economy and set the stage for heightened inflation in its immediate aftermath and eventually lower growth in the US and the world. It will disrupt manufacturing processes and supply chains like nothing has in decades. The “Liberation Day” diktat meant to revive US manufacturing, bridge trade gap and coerce investments into the US may not unravel as Trump predicts. A country is not managed like the household kitchen! Factories and manufacturing facilities with accompanying supply chains and skilled labour cannot be shifted or set up overnight and it would be too simplistic to assume that such a shift would take place soon enough even with drastic change in tariffs. For example, over 50% of Nike’s footwear is made in Vietnam. Tariff hike would mean Nike shoes would cost much more in the US. It’s in effect a tax on the US consumer. Nike Inc will require considerable time for planning and resource mobilization to shift manufacture of Nike shoes to, say, Oregon. Even then the US consumer is faced with a Hobson’s choice as that would still mean higher prices for the US consumers given much higher wages prevailing in the US. Same is the case with manufacture of Apple iPhones in China with 90% of the components for the same coming from Taiwan. May be Trump’s advisors have to revisit the basic economic concept of Comparative Advantage. US hasderived its strength by climbing up the value chain through excellence in research, cutting edge technology and private enterprise in sunrise sectors like genetic engineering, biotechnology and medical services, space technology, quantum computing, internet of things, 5 G technology, AI, defence and finance. Its preeminence in defence and financial innovation coupled with its political and institutional stability has given it the unparalleled advantage of US $ being accepted as the global reserve currency. Unfortunately for the US, the prevailing myopia, accentuated by the yes-men in the White House is such that Trump is unable to appreciate that the reserve currency status of the US Dollar coupled with low American tariffs has prompted its trading partners to hold their foreign exchange reserves predominantly in the form of dollar securities thereby financing, free of cost, US consumption with their savings. This dream ride for the US consumers is likely to end if major economies like China and EU against hike in US tariffs. The situation is fluid and changing rapidly. China has upped the ante with aggregate tariff of 125% against the US, which has hiked tariffs to an insane level of 145% on China. This trade war will hurt US farmers as substantial agricultural exports from the US to China will be impacted by the heightened duties. China has also imposed ban on exports of critical minerals to the US thereby crippling its companies engaged in cutting edge technologies. Ontario in Canada did not hesitate from imposing 25% tariff on electricity supplied to the US consumers after the US tariff hikes, though since then both sides have climbed down on tariffs. If negotiations fail EU also may be compelled to resort to retaliatory tariffs. The consequences of such retaliatory measures could indeed be dire given the fact that just the three major economies of US (26.47%), China (17.79%) and EU (14.46%) account for nearly 60% of the global GDP (2023). Even the diehard followers of Trump would not have missed the meltdown in the US bond markets in the second week of April. In a foretaste of the things to come, the US 10 year bonds, considered a global safe haven asset, saw its price fall as its yield spiked by 50 basis points in just one week. This would have rattled the Trump administration which was looking for cheap refinancing options for the $9 trillion debt coming due in 2025. The spike in yield was, ostensibly, because the market was speculating that China would retaliate by selling its large ($1079 billion) US treasury holdings to push yields up and hurt the US. So, with Trump imposing a tariff of 145% on China, traders started unwinding their basis (arbitrage) trades causing the spike in yields. Markets indeed, are great teachers to ignorant yet obdurate politicians! But in the wake of market meltdown, protests at home as well as global backlash, madness in White House seems to be abating. Trump had to tone down his bluster and swallow some of his pride and announce 90 days pause on reciprocal tariffs on some 75 countries excluding China. China in the meantime has stated that escalating tariffs further doesn’t make any sense, irrespective of how the US reacts, since at a tariff wall of 125%, China’s market is effectively closed to US exports. In fact, China is emerging as the adult in the room as it reaches out to South East Asian countries and even as Spain and EU are warming up to it. Well, despite his claims to the contrary, Trump has, in just about three months isolated the US in the comity of nations and undermined its leadership, its reserve currency status and plunged the US and the world into an uncertain future with ignorance and ego rather than farsightedness driving White House agenda. Outlook for India: As of now, given the tariffs announced for the entire list of US trading partners, no major exporting country seems to be differentially advantaged making the US consumer the primary loser. But how one wishes that international trade were as simple as that! It was initially felt that our major competitors in the US market like China (145%), Vietnam (46%), Bangladesh (37%) and Thailand (36%) being slapped with relatively higher tariffs, India’s pharmaceuticals, textiles & apparel, electronic and semi-conductor sectors could shine. The euphoria for the pharma sector however, was short-lived as Trump followed up his initial exemption of pharmaceuticals with a plan to hike tariff on pharma products with rates “never seen before”, so as to cause a shift of pharma manufacturing from China and India to the US. However, it is hoped that textiles and garments would enjoy tariff advantage while electronics and semiconductors would benefit from likely relocation of investment. Electrical and engineering exporters could benefit from wage arbitrage and a depreciating rupee to offset the tariff effect. Services exports are spared from tariffs (for now), but in the market mayhem that followed the tariff announcement, the software names took it on the chin. Most of these companies derive a major part of the revenue from the US. With the likelihood of discretionary spending going down in a slowing US economy, the revenue (fresh orders) and margins (price realization) for these companies are expected to go down. There could also be headwinds with the White House pressuring more and more of its digital MNCs to onshore services and others to increase employment of local hands by tightening grant of work visas. Unlike China, India cannot negotiate with the US from a position of strength. It is just as well that India has chosen to negotiate a Bilateral Trade Agreement (BTA) with the US post-haste. We cannot take much comfort from the fact that China which suffers much higher tariffs will mean greater room for Indian exports to the US, an economy that is most likely to face a slowdown in consumption. Further, there exists significant scope for using tariff arbitrage through re-exporting cheap Chinese goods from low tariff countries, limiting the scope for other countries to outcompete China. Moreover, a staggering $1.9 trillion in extra lending in China is fueling a continued flood of exports that could be spread even wider across the world because of Trump tariffs. India needs to be vigilant against dumping of such imports. But India’s position is not that desperate. The contribution of net exports to India’s GDP growth has been limited, though there would be specific sectors that might be severely adversely impacted. India’s external account appears far less vulnerable than its peers. It is true that capital account has been under stress with copious foreign portfolio outflows, slowing FDI and NRI remittances and this has weakened balance of payments considerably. Reciprocal tariffs will impact merchandise exports to the US which have 18% share in the overall exports. Services exports will be hit if US goes into recession. Yet there are three factors which might help our current account. One, the weakness in the dollar index which is down around 5% since the beginning of 2025 is helping all emerging economies, including India. The rupee has already appreciated 2.5% from its recent lows and this will moderate India’s import bill. The export competitiveness of rupee may not be eroded, as most emerging market currencies have also appreciated vis-à-vis the dollar. Second crude oil prices which account for major part of our import bill, are moderating and are expected to remain subdued. The third positive factor for the current account deficit (CAD) is the reduction in the gold jewellery demand due to surge in gold prices. Gold imports in February this year are reported to be 85% lower compared to last year, hitting a 20 year low. So, India should be able to arrive at balanced deal under the BTA with the US. The BTA has to take note of the fact that agriculture in India is predominantly a subsistence activity unlike in the US and subtly convey the double standards prevailing in the farm trade. During 2018-19 the US Market Facilitation Programme pumped an unprecedented $23 billion into subsidies to offset losses of its farmers. The per farmer support in some developed countries is estimated to be more than $80000 compared to less than $500 in most developing countries. Trump seems concerned more with trade deficits than tariffs per se. Though not openly acknowledged, the fact that US is no longer a competitive manufacturer of goods, has lead to the realization that lower tariffs may not automatically lead to US imports finding ready takers in other countries. Trump has already turned down zero tariff deals with Europe and Vietnam! Given this background, India’s response, need not focus so much on tariff rates as on the extent of its trade surplus with the US. It could increase its strategic imports from the US, focusing on energy and defence products as well as electronic products requiring advanced technological inputs. Finally, given the prevailing tariff turmoil, how does the Indian investor approach the markets? The outlook for software stocks seems uncertain unless they enjoy resilient growth rates and are attempting meaningful diversification beyond North America. But their valuations have corrected sharply and are currently below the 10year average. It may be profitable to remain neutral on the sector and take a call on the leaders with better region wise diversification and good cash balances on the balance sheet as they could turn into attractive dividend yield plays, should there be further correction. Tariffs on pharma sector seem imminent and it may be prudent to look for stocks that derive bulk of their revenue from within country or are well diversified. Health care sector is another area that is largely insulated from the trade war. FMCG companies which have corrected substantially also seem to be a safe bet. Companies like Tata Consumer Products or Jyothi labs which are seeing volume growth without compromising margins seem promising for the long term. There could also be pickings in defence, infra and finance sectors for the discerning contrarian. Looks like the next one year will be a period when fortune favours the brave; those who venture out with diligent homework and well thought out strategy.