Donald Trump’s ‘Art of the Deal’ loses shine

False bravado creates global trade chaos

The second term of Donald Trump has begun pretty much like the first, with bombastic claims and whimsical decisions that are made and unmade in the same breath. The one big difference is that in this term Trump has taken a sledgehammer to the global trade ecosystem, and has wrecked it in barely four months. Even in the unlikely scenario that Trump comes to his senses, it will take far longer than his Presidency to fix the system again.

With the new global trade war, the process of continental drift has already started. Global power shift is taking place at an unimaginable speed. The new global affairs are changing power dynamics and business. Continents like Europe, Asia are already in the process of looking for allies and partners away from the United States. There is a growing sense in Europe and in India too that the US is no longer a reliable and consistent partner but rather a disruptive actor or more like a powerful destructor. That is why, what is happening in the US today or in which direction American trade policy is moving not many people can either understand or withstand or both.

President Donald Trump’s approach to foreign policy has rapidly reshaped this global order, dismantling the foundations of the US leadership in the world.

He has pushed away, or rather deliberately threatened long-standing and natural allies of the US, ranging from Canada to the European Union. Since taking office, the Trump administration has arbitrarily imposed tariffs at a level not seen in more than a century. This has made it difficult for American allies and trade partners, to coordinate leaving the United States more isolated on the world stage thus causing long-lasting damage to one of the foundational pillars of US economic strength, a high degree of stability in its policy making, especially since Trump has been prone to revisit his own decisions within days or even hours and then revisit them again.

Most countries have responded in varying ways to Trump’s theatrics, while some like Canada responded robustly, with nationwide boycott of US products, the EU has threatened to hit back, but not yet found the gall to nail the exact reciprocity that it said it would attach to Trump’s tariffs. India has reacted rather softly, with a unilateral cut in tariffs already in place and a rush reach a Free Trade Agreement with the US at the earliest.

China, which was hit clearly the hardest by Trump with tariffs of up to 145 pc, hit back swiftly and in equal measure, indulging in tit for tat increases.

Dragon Spits Fire Again

The robust Chinese response and the extent to which the economies of both the countries are intermeshed began to have its impact felt in the US as much as in China, sending stock markets nose-diving, which may have been a key factor in pushing the Trump Administration into a rethink.

And on May 12, in a meeting in Geneva, the United States and China agreed to drastically roll back tariffs on each other’s goods for an initial 90-day period, in a surprise breakthrough that has de-escalated a punishing trade war and buoyed global markets. The tariff truce with China has demonstrated the limits of Trump’s aggression. China has seemingly called Donald Trump’s bluff on tariffs, to the delight of global market.

Chinese President Xi Jinping’s decision to stand his ground against Donald Trump could hardly have gone any better for the Chinese leader. His defiance has paid off as Trump met most of China trade demands. The retreat comes as the first impacts from the tariff-war were beginning to show, with US ports reporting a sharp drop in the number of ships scheduled to arrive from China. Factory output had slowed in China, and there were reports of firms laying off workers, as US orders dried up.

There is another factor which has led to America’s massive tariff on China. It is not trade but the American Dollar. For last few years, China has been working through BRICS and through its own economic might to topple US Dollar as the world’s most coveted reserve currency. The USD’s role since the 1940s as the unit of account for most international trade and financial transactions has privileged American finances and American power, and China is working to break this. Possibility of De-Dollarisation has been shaking American leaderships for last few years and they want a permanent lid on this.

As Goldman Sachs reports, the rise of US tariffs on Chinese goods may kill up to 16 million jobs in China, particularly in manufacturing for the retail and wholesale sectors. The Goldman Sachs also reports that Trump’s tariffs would drag down China’s GDP by as much as 2.4 percent. China’s economy has already been growing at a slower pace than when Trump first took office. The latest trade war comes as China is struggling with deflation, a crisis-stricken property market and elevated debt levels. Despite growing tensions between the US and China, Washington and Beijing remain major trade partners.

Challenges for India

As US policy towards China is undergoing a significant shift, moving from engagement and partnership to a more confrontational approach, emphasising competition and containment, India must see Trump’s tariff war through the prism of its geo-political interest in the Indo-Pacific. Also, as the shift in America’s policy is driven by concerns about China’s growing economic and military power, and its impact on global trade and technology, it is in India’s strategic interest to calmly but firmly negotiate with US administration new tariff deal.

Indeed, the future of US-India relations will be determined how both countries negotiate the free trade agreement, and how India can assure US that despite the unexpected tariff war it is ready to address many of the American concerns. Given the volume of bilateral trade between the two countries, a comprehensive FTA will therefore go a long way in deepening their strategic partnership. Geo-politics always influences trade and economics, and in this context, India is in a comfortable position to protect its interest to navigate velocity of the strategic partnership.

It has been reported that India and the United States have already finalised the terms of reference for the initial phase of a bilateral trade agreement and in coming weeks they shall announce the deal. The two nations had earlier agreed, in February, when Prime Minister Narendra Modi visited the US to collaborate on the first stage of the trade pact, aiming to finalise it by the end of this year. The broader, perhaps ambitious, goal is to almost triple the bilateral trade to USD 500 billion by 2030.

Trump believes in bargaining more than negotiating as he thinks that bargaining gives him absolute power, and negotiations is the job of bureaucrats. His every business and economic move is based on the lesson of his book The Art of The Deal. However, India has the skill to bargain for its interest and is not shaken by America’s economic might.

Although, the new tariff pause between US and China poses challenges for India as the sky-high tariffs on China had offered a competitive edge to Indian exports and India must be waiting to see what US-China deal would be. India must negotiate a favourable trade agreement with the US as leveraging its domestic strengths are crucial for India to remain competitive in global supply chain. India cannot afford to lose its leverage on the China policy of the US.

Where EU Stands

The European Union faces one of the greatest challenges of modern times today. Eighty years of excessive reliance on the might of the United States has left many European countries exposed. With the fast-changing scenario, allies and partner countries must learn how to navigate a future without Trump’s America. Trump’s disruptive acts have left countries reeling as time-honoured ways of doing things have changed in unexpected ways. How best EU can respond and negotiate a tariff agreement with US will depend upon how forcefully EU can make US realise that success of American foreign policy depends upon collaboration with EU democracies. The EU humbled by America is exploring views of non-European powers such as India, and this is evident by the unprecedented visit of the European Commission President along with the College of Commissioners to New Delhi in February.

The US has for long served as the architect and anchor of Europe after the Second World War but is not able to realise that America’s global interest does not only depend upon short-term trade wins but more on long-term, mutually beneficial economic and geostrategic relationship.

But with Trump focussed on showing off his power over the world to his core voters back home, he is not worried about the disaster that it can potentially lead to. With his chaotic, disruptive and unilateral tariff on 195 countries around the globe, Trump may be able to address, to an extent, trade imbalances, but the lasting damage that he is doing to America’s foreign policy is beyond repair and is unimaginable.

Trump has blown up the world order and has left Europe’s leaders scrambling. How best the rest of the world can respond? One possibility is to match his actions. But that is not a sensible way out as confrontation must be replaced by compromises for peace and stability.

There is hardly a day when Trump does not bring a new target and another broken taboo. Amongst them tariff war against all countries is the one which is shaping the new world order. As nations that have historically depended on the US for economic and security support have come to realise that they need to become more independent, this uncertainty generates profound changes in global geopolitics. This therefore may have placed EU on a collision course with the United States and the impact of these collisions will be transformative that will fundamentally alter and transform the transatlantic relations.

The larger Europe is now staring at the beginning of a new post-American age. Rather than obsessing over the events in Washington, Europe must now focus on itself and above all on investing in its own strength. No doubt that Europe is under pressure, but it is not alone. Many countries share Europe’s alarm over Trump’s coercion, unpredictability and aggressive unilateralism.

The fallout from Trump’s trade war is only beginning to be felt in Brussels. Early this month, the European Commission President Ursula von der Leyen called for a “negotiated resolution” with China in a call with the Chinese Premier Li Qiang. One school of thought suggest that Europe should now pursue a ‘China option’. But this is a dangerous idea, and Europe must not think this option. It is true that Europe’s relative distance to the US has increased but that does not mean that its absolute distance to Beijing has decreased. On the contrary, Beijing will treat this as another display of European weakness, and this will be disastrous in all respects.

The US and the EU have the largest trading relationship in the world, having traded USD 1.4 trillion worth of goods and services in 2023, according to the latest available official data. Despite such high volumes, there is no free trade agreement between EU and US as they have been operating under the most-favoured nation (MFN) status. But things are changing, and they may now need an FTA. The EU is in a vulnerable position, but it is also arguably better prepared to face the challenge, and today EU is more pragmatic and transactional.

Henry Kissinger, former US Secretary of State, had once said “America has no friends, only interests,” and Trump is desperate on reminding this to the world.

(Sunil Prasad is the Secretary General of Brussels based Europe India Chamber of Commerce. The views expressed here do not necessarily reflect those of Media India Group.)