Tariff Tracker: The enduring consequences of Trump's trade disruptions

Recent updates on US-China tariffs indicate a lack of clear direction amidst the tumult of President Donald Trump’s trade policies. Despite initially exempting smartphones and computers from tariffs, he has since suggested they may fall under a different tariff category. Furthermore, he has committed to considering temporary tariff exemptions for automotive manufacturers. Following a rebound in global stock markets on April 14, after the announcement that certain electronics would be spared from tariffs as high as 145%, Trump contradicted this by stating that Chinese-made smartphones and electronics would not be exempt.

This was in stark contrast to a US Customs notification that had previously confirmed the exclusion of these items from tariffs on imports from China. Trump took to social media to refute claims of exemptions, asserting that these products would simply be categorized differently. He also mentioned an examination of semiconductors and the entire electronics supply chain in forthcoming National Security Tariff Investigations.

The situation regarding tariffs on smartphones and electronics has rapidly evolved, defying initial expectations of a more conciliatory approach towards China. Amidst the ongoing chaos, there remains little of substance to glean from these developments. More concerning is the expansion of anxiety beyond economic matters, as Trump’s actions to withdraw funding from universities that oppose him, including a $2.2 billion freeze on Harvard, and his efforts to retract government contracts from legal firms representing his adversaries, alongside aggressive deportation tactics, pose a significant threat to the foundational principles of American society.

Deng Xiaoping, the architect behind China's economic reforms, advocated for a principle of growth: 'Conceal your capabilities, wait for the opportune moment', a philosophy influenced by Sun Tzu's 'The Art of War'. This approach significantly contributed to the reconstruction of China following a prolonged period of economic hardship, commonly referred to by the Chinese as the century of humiliation.

contrast, Chinese President Xi Jinping has shifted away from this doctrine since the midpoint of his presidency, adopting a more assertive 'wolf warrior' diplomacy. Despite the tumultuous tariff environment, he has shown a degree of restraint by urging Trump to 'completely cancel' his tariff policies and 'return to a path of mutual respect', even as his administration maintains that China will not be 'intimidated'.

Beijing has consistently implemented its own tariff increases at levels lower than those imposed by the US, while advocating for stability amidst stock market volatility. In this context, Xi has sought to project himself as a statesman and a proponent of free trade, contrasting with Trump's erratic policymaking. On Monday, Xi commenced a significant diplomatic tour of Southeast Asia, targeting major export-dependent economies to establish China as a reliable partner in opposition to the US. He arrived in Vietnam on Monday and is scheduled to visit Malaysia and Cambodia from Tuesday to Friday.

This diplomatic initiative appears to be more sustainable than China's Belt and Road Initiative, especially in light of current circumstances and the aggressive tactics employed by the US. The unintended repercussions of Trump's tariff strategy, along with his indiscriminate penalization of allies and adversaries, are prompting nations to re-engage with China in ways that were previously inconceivable prior to January 20. This development is likely to be met with concern in New Delhi, as the rationale for countries to align with China seems increasingly persuasive with each passing day.

Analysts suggest that the combination of escalating deficits and a potential erosion of institutional independence may prompt foreign entities to reconsider their willingness to provide unlimited loans to the US Treasury. This could signify the onset of a significant decline in one of Washington DC's key advantages — the privilege of possessing the global reserve currency and the capacity to operate beyond its financial limits. Such a transition could represent a pivotal moment, comparable in significance to the early 2022 decision to freeze Russian foreign assets, which compelled central banks worldwide, including India's RBI, to acquire physical gold instead of derivatives or exchange-traded funds linked to gold prices.

Additionally, the selloff of American bonds commenced as confidence in the US economy waned, with foreign investors, notably from Japan and China, reportedly divesting US government debt due to increasing apprehensions regarding the repercussions of Trump's tariffs. Concurrently, the dollar is experiencing a decline, indicating a collapse of a fundamental principle that has traditionally supported global finance — that significant volatility in the forex markets and a rise in the VIX (volatility index) typically results in heightened demand for dollar-denominated assets. However, the recent trend has been contrary to this expectation.