Trump’s tariffs could be the worst solution right now.
RN Bhaskar
Image sourced from http://deepai.org/
On Trump’s tariffs — “as much as Trump is powerful right now and he seems immensely powerful given the developments of the last one week where the world seems to be bending its knee to his will, I think the gravity of economics will bring him down.” Spoken by Taimur Baig, managing director and chief economist at DBS Bank on 28 January 2025 in Mumbai.
The wrong type of hero worship
Donald J Trump marched into Presidentship of the US with a clear focus on tariffs. His hero was William McKinley, 25th president of the US. In the 1890s he decided to embark on the levy on tariffs on imported groups.
That was when, after 450 amendments, the Tariff Act of 1890 was passed and increased average duties across all imports from 38% to 49.5%.
As Wikipedia describes it (https://en.wikipedia.org/wiki/McKinley_Tariff), “McKinley was known as the “Napoleon of Protection”, and rates were raised on some goods and lowered on others, always in an attempt to protect American manufacturing interests.” Trump admired him so much and one of the first executive orders he passed was changing the name of Mt. Denali to Mt. McKinley.
Surprisingly, even though high tariffs eventually cause an economy to stumble, the US thrived after the McKinley tariffs were introduced. Normally, all high tariffs cause industries to become complacent because they are protected by a wall of tariffs. They then become inefficient. And there is no spur for innovation which makes companies nimble and ahead of the curve. So why did this not happen with McKinley.
This is where you should listen to Baig’s explanation – a 10-minute talk – at https://www.youtube.com/watch?v=aFoUvrSYHvo. He explains how McKinley was doubly lucky. First his era was witness to the gold rush, which saw a huge influx of gold, which was linked to the US Dollar. Thus, there was considerable monetary easing, and inflation was kept at bay. Second, it was an era marked by large migration of Irish and Italians into the US.
Consequently, there was an explosion of talent, and new businesses emerged. The US saw boom times, notwithstanding the high tariffs.
Trump’s tantrums
Trump imposes tariffs when there is already the danger of inflztio9n rearing its head once again.
Unlike as in the McKinley era, when the US was flush with cash, the current era is where the country is groaning under a debt burden of $36 trilling, which continues to grow. Its annual deficits are huge and growing. He might have thought that he could use oil and LNG as the equivalent of the gold rush, but that is not likely to happen for several reasons (free subscription — https://bhaskarr.substack.com/p/will-trump-get-bogged-down). And instead of migrants coming into the US, Trump is busy trying to drive them out and even humiliating them (free substack — https://bhaskarr.substack.com/p/trumps-quagmire-now-what-do-we-do) . He only wants migrants who can pay $5 million for the Golden Visa (https://economictimes.indiatimes.com/nri/migrate/donald-trumps-gold-card-visa-program-is-basically-a-5mn-us-green-card/articleshow/118593015.cms?from=mdr)
Worse, the US continues to bleed because of the two wars in Ukraine and the Middle East. In both wars, the US has been the primary weapons supplier (free subscription — https://bhaskarr.substack.com/p/america-weeps-trump-leaves-it-isolated) . In the Israel war, it has even abetted genocide and ethnic cleansing.
Consequence
The consequences are evident. Baig talks about rampant inflation as being the first obvious consequence. The US will suffer good inflation because of the high tariff wall and also labour inflation because of the actions against immigrants (free subscription == https://bhaskarr.substack.com/p/trumps-quagmire-now-what-do-we-do).
Worse, Trump is now witnessing a coalescing of forces against his tariff moves.
In retaliation, Germany and Canada have joined hands. Canada which imports over $300 bn worth goods each year from USA is now willing to boycott YS goods and source them from elsewhere (https://www.bloomberg.com/news/articles/2025-02-27/canadian-shoppers-ditch-american-products-as-tariff-threat-looms). Germany and Canada are both affected by the high tariffs on aluminium and automobiles have drawn up their own lists of counter prices.
Even the EU and China have warned retaliation. China’s Ministry of Commerce said Friday that it “firmly opposes” U.S. President Donald Trump’s latest threat to ramp up tariffs on Chinese goods and vowed retaliation, if necessary (https://www.cnbc.com/2025/02/28/china-vows-to-retaliate-as-necessary-after-trump-threatens-tariffs.html).
According to US trade figures, Canada, Brazil and Mexico are the three biggest steel exporters to the US, followed by South Korea. An estimated 25% of EU steel exports go to the US, worth about €3bn a year over the past decade. — https://www.theguardian.com/business/2025/feb/11/european-leaders-vow-retaliation-trump-tariffs
Suddenly, many of the biggest exporters to and importers from the US have decided to take action against US goods.
The US will now be hit with a double whammy of declining exports, and more expensive imports. Combined with the debt and deficit, expect the US to begin haemorrhaging.
It reinforces the prescient remark that Baig made in Mumbai that ““as much as Trump is powerful right now and he seems immensely powerful given the developments of the last one week where the world seems to be bending its knee to his will, I think the gravity of economics will bring him down.”
What about India?
As for India, the situation is a bit mixed. India has imposed high tariffs itself. Not surprisingly, its economy is weak. The name of protection, India has become a high cost, low productivity economy. The only thing that could possibly help India is a dose of Trump so that tariffs come down, and India could become competitive once again.
But India must guard against promises it has already made – of boosting trade with the US to $500 billion by 2030. This will eventually mean more US imports into India, weakening the rupee further. Similarly, it must guard against agricultural imports, which will further wreck the miserable fortunes of Indian farmers. And finally, it must be wary about US defence imports. US weaponry has failed in both recent wars – in the Middle East and in Ukraine. India should not be paying first rate prices for second rate equipment.
Finally, India will have to find a way to stop being blackmailed by the US == free subscription — https://bhaskarr.substack.com/p/the-indian-government-has-inflated, It must pay serious heed to the statements that Sergei Lavrov made in Delhi in 2023, about how almost every Indian bureaucrat and politicians is now being blackmailed by the US –timeline 18:47 at https://www.youtube.com/watch?v=hiA8Ex9KQo4).
As for Trump’s tariffs, the gravity of economics is bound to bear him down. The sad part is that along with him the future of the entire country along with those of the war theatres it has propped up will also suffer grievously.
Trump’s tariffs are likely to be terribly expensive for the world.
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Do watch my latest podcast on why the US will lose the Ukraine and the Middle East Wars at https://youtu.be/CXOm9lBLmIk
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