MARKET PERSPECTIVE

By J Mulraj

Sep 6 – 12, 2025

And this will hurt global growth

Image created by Bing

In 1817 David Ricardo, a classical economist, first propounded the Theory of Competitive Advantage in International Trade. Later on, Porter (Michael, not Harry) propounded it for business. Under this theory, two nations, with competitive advantage in producing two different things, were to focus only on that which they had a competitive advantage in, and traded with each other, both would benefit. Post WW II, USA, which strongly believed in global trade, promised all nations, at the Breton Woods Conference, that it would assure safety of navigation to promote global trade.

Today, global trade contributes 57% to global GDP. One would expect leaders to encourage it, as all would be happy to see economic growth make their citizens prosper.

Donald Trump, though, does not. His grouse is that other countries have been ‘ripping America off’ and he is seeking to remedy that. Let’s analyse that claim.

Today, USA has the largest economy, with a GDP, in nominal terms, of $ 30.5 trillion. In PPP (purchasing power parity), it is in second spot, after China. In per capita GDP, the US is in top ten, ranked both in nominal and in GDP terms. That would not be the case, would it? had the US been “ripped off” over the years?

On the contrary! It has used the extraordinary privilege of having the only globally accepted currency to be able to consume beyond its means, borrowing, because of the extraordinary privilege, from other countries to fund its trade deficit, whilst being unaffected, as it ought to, by high inflation because the stock of $s, termed petrodollars, is held outside of it’s borders.

This extraordinary privilege, together with it’s control over the international payment system, SWIFT, allows the US t another extraordinary privilege, the ability to imposes sanctions on others, and to seize their US $ assets. It did so with Russia, for invading Ukraine, and threatens others.

Using these extraordinary privileges it has been able to arm twist other countries into one sided trade ‘deals’, more aptly trade squeals, by the counterparty. In it’s deal with Japan, eg, whilst export of Japanese cars (the gander) to USA would attract a 15% tariff, the export of American cars (the goose) to Japan would be duty free. The sauce is clearly different!

Moreover, Japan is to invest $ 550 b. in USA, and, up until Japan gets back it’s investment, the US will take half the profits. Once Japan recovers it’s $550 b. investment, USA gets 90% of the profit. Hence a trade squeal, not a trade deal!

Thus the depiction in the illustration above, of the lower, often none, tariff hurdle for one athlete than for others.

A US Appeals Court has adjudged the tariffs to be illegal and if upheld by the Supreme Court, the US would face the financial burden of refunding the tariffs collected.

Trump has imposed a 25% additional tariff on India for buying Russian oil, and thus, he claims, in his twisted logic, helping the war effort against Ukraine, and so leading to senseless deaths. Twisted for many reasons. It was USA/NATO which provoked the war by insisting that Ukraine be granted membership of NATO, which Putin had warned was a red line. USA, under Biden, then fuelled the war giving financial and military aid to Ukraine. The collective west outsourced deaths to Ukrainians. Further, British PM Boris Johnson, prodded by Biden, scuttled a ceasefire agreement o terms mutually agreed by both warring parties, just two months after the invasion. Finally, China, which buys more oil from Russia, is spared, because of it’s control over rare earth minerals, without which America’s F-35 cannot fly.

More importantly if supply of Russian oil is removed because of punitive sanctions, the price of crude oil will shoot up, causing global inflation. Today, the global demand and supply of crude oil are in sync, at 104-105 million barrels per day (bpd). Russia supplies around 10 m. bpd. So India’s purchase is helping price stability. It is also helping EU get a supply of refinery products, like petrol, diesel, aviation fuel, LPG and others.

India’s Reliance Industries has set up a refinery in Jamnagar, Gujarat, which is not only the world’s largest single site refinery, but has the highest Nelson Complexity rating of 21.1, the highest in the world. This is important. The higher the complexity rating, the refinery can process the heaviest and dirtiest of crude. European refineries have a lower rating, between 9.2 and 12.6. American ones between 13.2 and 14. Since heavier/dirtier crude prices are lower, refineries which can process them make more money.

So Trump’s claim that India ‘profits unfairly’ by selling discounted Russian oil at a profit does refer to the fact that Reliance has invested to build the world’s largest and most complex refinery and is fully entitles to the rewards of its enterprise. EU simply wants the benefit of lower refinery product prices without making the effort to earn it! Trump is now egging EU to impose 100% tariffs on India. It’s the height of hypocrisy.

The unilateral and blatantly unfair tariff policy is affecting global trade, which contributes 57% of global GDP.

Isaac Newton propounded, in 1687, his Third Law of Motion, in 1687, which stated, simply, that every action has an equal and opposite reaction. Trump’s aggressive and unfair tariff levies have had such reactions.

US goods trade deficit in July grew 22% to $ 103.6 b. due to increase in imports by $ 18.6 b.

The US has an advantage in the semiconductor industry, especially in advanced chips/chip making equipment, and is restricting access/making it expensive, for China. But China has reacted, in several ways. One, by banning export to USA of key raw materials like germanium, antimony and gallium, essential for the semiconductor industry. China is the dominant supplier of these rare earth elements. Two, by imposing counter tariffs on America, though some were later lifted. Three, Chinese industry associations are warning Chinese companies to be careful about safety concerns in using American chips, (much like America was warning other countries about using Chinese chips over safety concerns, earlier). There are regulatory pressures in China to phase out the use of American chips especially in telecom and infrastructure.

All manufacturers desire to build scale. If they are not free to avail of a global market, which is split into two for geopolitical reasons, the theory of competitive advantage says prices in both halves will increase. China is building advanced chips as also chip making equipment. So manufacturers in various countries will see customers divided in two blocks and lack of competition will hamper innovation.

Perhaps Trump could read these books: ‘The Principles of Political Economy and Taxation’, by David Ricardo; ‘ThePrincipia’, by Isaac Newton; ‘How to Win Friends and Influence People’, by Dale Carnegie.

Last week the BSE Sensex closed at 81904 for a weekly gain of 1194 points.

Donald Trump hosted a dinner at the White House, attended by heads of leading companies, though Jensen Wang, of Nvidia, the world’s most valuable company, and Elon Musk, founder CEO of Tesla and the world’s richest person, were absent. Others made pledges for capex plans which seemed to please Trump.

The most interesting corporate news was the proposed pay package offered by the Tesla board to CEO Elon Musk. Elon will not be paid anything for 10 years but will get 12% of Tesla equity on achieving certain milestones within a 10 year time frame. The financial milestone is to increase the market cap of Tesla from $ 1.3 trillion today, to $ 8.5 trillion in 10 years. Plus other physical milestones too. If he does achieve this, his 12% holding will be worth $ 1 trillion.

It will be worth it for minority shareholders to accept. Their holding will have grown 6.5 times, likely much more. The growth will come from robotaxi (full self driving cars) and from Optimus, its humanoid robot. The gain in productivity by deploying humanoid robots will be large enough to solve Trumps main worry of US over indebtedness.

In geopolitics the news is depressing. Russian drones invaded Polish airspace and were shot down. Poland has sought consultations with NATO countries under Article 4. Thankfully it has not sought joint action under Article 5, which would alarmingly widen the theatre of war.

In the Middle East, Israel did precision bombing on a building in Qatar, to eliminate Hamas leadership. The US has a military base in Qatar which makes a volatile situation more dangerous.

The US made an unprovoked attack on a Venezuelan speedboat, killing 11, on the grounds it was carrying drugs.

The dogs of war have been unleashed.

It’s high time sobriety prevails and some leader throws them a bone of peace.

Comments may be sent to jmulraj@asiaconverge.comThe dogs of war have been unleashed.

It’s high time sobriety prevails and some leader throws them a bone of peace.