MARKET PERSPECTIVE

By J Mulraj

Feb 1-7, 2025

Cleaning up a mess is far harder than making it

Image created by Bing, using AI

Increased import tariffs by Trump on China were widely expected. In his election campaign he had vowed to impose up to 65% additional tariffs, though ended up with just 10%. What was unexpected, though, was the 25% tariffs imposed on its Northern neighbor, Canada, and its Southern one, Mexico. Both friendly neighbors, with a lot of trade between the three countries, especially in the auto sector, with both supplying auto parts to GM, Ford and Stellantis. The additional tariff imposed on Canadian oil was, however, lower at 10%. Trump wants lower gas prices.

Stock markets reacted badly to what seemed like the start of a mad trade war.

A good magician, using sleight of hand, diverts his audience attention, in order to do his magic, and make the rabbit appear out of his hat. Similarly, Trump’s intention was not to raise tariffs but to threaten to raise them unless some privately communicated conditions were met. He wanted both countries to stop sending illegal immigrants to USA and to stop sending illegal fentanyl, a synthetic opioid to which Americans have gotten addicted, resulting in several deaths.

Trump has projected himself as mercurial and unpredictable. Unwilling to gamble on the seriousness of his intentions, the leaders of both countries caved in and agreed to stop the flow of illegal immigrants and of fentanyl to USA from their countries.

The contrast with Biden could not be starker. Biden did not project strength (witness the blotched exit from Afghanistan, which made other world leaders to scoff at his efforts) and his VP, Kamala Harris, did not project clarity (neither did he). No wonder both could not, or didn’t want to, control illegal immigration.

Trump projected strength, combined with madness through unpredictability. And it worked! Both Mexico and Canada vowed to send 10,000 troops to their border with USA to stanch the flow of illegal immigrants and of fentanyl.

It seems there was a method in madness. His objective was achieved by carrying out threats of higher tariff, which the size of the us economy gives its leader the ability to.

Trump’s other rants include asking Canada to become the 51st State of USA, a wish to acquire Greenland, and take control of the Panama Canal. There’s been a public outcry over his Greenland tweet. But, in May 1940, Britain militarily occupied Iceland, in an operation called Operation Fork, in order to prevent Nazi Germany from using it as a naval base. With the melting of the Arctic Ice, northern sea lanes will become more easily navigable, not needing a fleet of heavy icebreakers to be able to do so, thus allowing Russian and Chinese warships/submarines to threaten Canada and Greenland. The expected melting of the Arctic ice would also pose an environmental calamity. Because of greater navigation, ships would deposit their carbon emissions on remaining icebergs, which will melt them faster, increasing shipping thoroughfare and creating a downward spiraling loop.

Trump and his team are also distancing themselves from institutions, believing the institutions aren’t giving credit to USA proportionate to its contribution. USA has walked out of the Paris Accord on climate change, of the World Health Organization, WHO, (which, he felt, was too soft on China, which contributed far less in financial resources but wasn’t made accountable for the Wuhan virus) and has shut down USAID, or US Agency for International Development, started by President Kennedy through an Executive Order (EO) and now suspended by Trump through an EO. USAID has been influential in the education field, helping over a quarter million underprivileged students acquire reading skills. Trump feels that moneys, authorized by Congress, are not appropriately spent, and sometimes go to enemies of USA.

Another geopolitical pot being churned by Trump is his idea for Israel to hand over possession of Gaza to USA, perhaps with other countries, to clear the war debris and convert Gaza into a dream destination. His plan is to ask countries like Egypt and Jordan, who had administered Gaza after Israel vacated its settlements in Gaza and handed the territory of Gaza to them in Sep 2005. Israel had captured Gaza from Egypt in the 6 day war. It claims that Gaza was Israeli territory in Biblical times. The dispute has festered for far too long and passions are so deep rooted, and animosity so high, that a settlement of the dispute seems too difficult to visualize.

President Trump is trying to get as many things as he can, done before mid term elections in November, being unsure if the Republicans will hold the Senate majority after that. He is a man in a hurry.

So, till November, at the very least, stock markets will be tossed around, like autumn leaves on a windy day, by the moves and counters, to the outbursts f the leader of the largest economy. His rants might seem random, but there is, perhaps, a method in the madness.

Last week the BSE Sensex rose 360 points to end at 77860 .

India has launched Agni 6, an inter continental ballistic missile, with MIRV (multiple independently targettable re-entry vehicles technology). One Agni missile can target multiple locations, making stopping a hit more difficult. Congrats for developing this! Interestingly, future wars will largely be fought by drones, less by aircraft. In a recent interview Elon Musk stated so, averring that no humans could be placed on the front line, as drones would be able to shoot them with u flailing accuracy. Together with the development of humanoid robots, it seems that the size of an army would become less relevant, as remote warfare would prevail.

Let us hope that there will be more method than madness and that the global polity will sagely put an end to the various conflicts. Let’s hope that statesmanship trumps myopia.

Comments may be sent to jmulraj@asiaconverge.com