MARKET PERSPECTIVE
By J Mulraj
JULY 19-25, 2025
Is the deal with Japan truly a trade deal?
Image created by Bing
As per the Mirriam-Webster dictionary, the definition of diplomacy is a ‘skill in handling affairs without arousing hostility’. That was true, before Trump.
Trump used an anagram of ‘diplomacy’ – ‘clop my aid’, as his unique definition of it. He arrived at the illogical conclusion that a US trade deficit with a country arose because the trade partner was ripping America off, and not because the US was consuming more than it’s income! HE, Trump, had been ordained to do something about it. So he raised the bogey of ‘reciprocal tariffs’, arriving, (without any basis for the conclusion) at a rate of import duty America would charge that country. The rate would wipe out the US trade deficit! He treated the US deficit as an ‘aid’ that needed to be clopped and used tariffs as a hammer to do it with.
And, of course, such arm twisting cannot but arouse hostility.
On Thursday Trump triumphantly announced a ‘trade deal with Japan under which Japan would
Remember that the US is the world’s biggest consumer because it overspends, and borrows to do so. Its ability to keep consumption at a high level is thus predicated upon it’s ability to keep borrowing to do so.
Countries are responding in different ways.
China, the largest consumer of US soybean (used in animal feed) has stopped buying it from USA, affecting 88% of US soybean exports. Soybean exports are 14% of US agri exports, and a majority of farmers are Trump supporters. This would also negatively impact manufacturers of farm equipment, like John Deere.
Worst, yet, is the fact that, in the absence of American soya, China and other buyers are obtaining it from Brazil, which contains 60% of the Amazon forest. The Amazon forest are the lungs of the world, capturing much of carbon emissions. And the Brazilian Congress has just passed a law diluting protections to prevent exploitation of it. So Trump’s tariff war and China’s response to it could end up with an environmental catastrophe because, after all, Chinese pigs must be fed and Trump must get farmer votes! Right?
Such are the concatenation of events that lead to terrible outcomes.
Another pushback to ludicrously high tariffs would be a to develop an acceptable currency as an alternative to the USD. Talks have been ongoing for a BRICs digital currency, backed by gold. It will be a tough ask to displace the USD but can make a dent. Trump’s forfeiture of some $300 b. of Russian Central bank assets have caused consternation amongst other countries, and hence to a quest for an alternative.
Another ther counter is the age old custom of smuggling.. as reported by the Financial Times, $1 b. of Nvidia chips were smuggled into China after the Trump ban.
There are ongoing political developments in USA. Director of National Intelligence Tulsi Gabbard provided evidence accusing President Obama and others of treasonous conspiracy of Russian interference in US elections, attributing that to Trump’s win. This can cause a brouhaha, no laughing matter, in US politics.
Given such political uncertainties, and the perpetual wars in Ukraine (Russia is suffering huge damage to it’s missile stocks and to it’s anti missile defence systems) plus the political upheavals in US and China, it is surprising that stock markets remain steady.
Last week the BSE Sensex dropped 294 points to end at 81463.
It seems that the Trumpian version of diplomacy, threatening other nations to enter into unfavourable ‘deals’ with the US, will foster resentment and a backlash which can only hurt USA in the long term. He would need to wake up and smell the coffee.
Given such political uncertainties, and the perpetual wars in Ukraine (Russia is suffering huge damage to it’s missile stocks and to it’s anti missile defence systems) plus the political upheavals in US and China, it is surprising that stock markets remain steady.
Last week the BSE Sensex dropped 294 points to end at 81463.
It seems that the Trumpian version of diplomacy, threatening other nations to enter into unfavourable ‘deals’ with the US, will foster resentment and a backlash which can only hurt USA in the long term. He would need to wake up and smell the coffee.
And so will the stock market!
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