2024-04-08 22:03:13
There is intense excitement regarding the Presidential elections in America and the Lok Sabha elections in India. Opinion polls are predicting Donald Trump’s victory in the US Presidential elections and PM Modi’s victory in the Indian Lok Sabha elections. After all, what is the reason that this estimate has been expressed?
Swaminathan S Anklesaria Iyer, Opinion polls predict that Narendra Modi and Donald Trump will win their respective elections in India and the US. Both are experts in nationalist rhetoric and making their countries great again. While in office, Trump imposed import duties of 25% on steel, 10% on aluminum, and 30-50% on solar panels and washing machines. He later imposed tariffs on more than $300 billion of Chinese imports on grounds of unfair competition. Their objective was to increase domestic investment and create more jobs in America. He claimed that domestic investment had dried up due to unfair competition.
New slogan of self-reliance
This spread enthusiasm in the Swadeshi Jagran Manch (SJM), the economic wing of the RSS. Like Trump, it has long lamented the slow pace of domestic manufacturing and the threat from Chinese competition. Trump’s initiative was seen as a path to follow. Its impact was remarkable. In 10 years of BJP rule, the average duty on Indian imports has increased from 11% to 17%. In 2020, Modi gave India a new slogan of ‘self-reliant’. This could be interpreted as self-reliance – a model that failed miserably under Indira Gandhi – or self-reliance, which could mean that India pays for itself in the world without relying on aid and concessions.
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What will happen if Trump and Modi win?
Modi has stressed that self-reliance does not mean isolation or autocracy, but inter-dependence, producing for the world as well as India. But many BJP ministers talk about self-reliance instead of imports, threatening a return to the failed policies of the 1970s. What will happen if both Modi and Trump win their elections? Trump has already promised that if elected, he would impose a flat 10% import tariff on all goods, as well as higher tariffs on China and others he accuses of unfair trade. Swadeshi Jagran Manch and industrial lobby may press for similar action from India.
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There should be strong opposition to increasing tariffs
Tariff increase should be strongly opposed. Many studies of Trump’s high tariffs have revealed disappointing results. His rhetoric appealed to American workers who saw immediate benefits in less competition from abroad. But the net effect was negative. One reason was that trading partners (which included India) retaliated by increasing their tariffs against American exports. What the steel workers gained others lost. Did new steel and aluminum plants spring up across the US after Trump’s tariffs? no way. Old steel plants based on blast furnaces are still closing because making steel from iron ore is not profitable in America. But their steel plant, based on electric arc furnace using steel scrap as raw material, is expanding. This is because America produces a large amount of scrap. This mostly includes scrap of junk vehicles. The US is a leader in this technology, and such production is expanding. This is creating new jobs but the old jobs in blast furnaces will never come back.
Many studies show that the former US President’s policies led to job losses, slowed GDP due to less investment, and a massive increase in mortgage loan rates. This affected every American home-buyer and the building industry. Due to domestic political compulsions and influenced by nationalist rhetoric, following the same path may also cause harm to India.
– Swaminathan SA Iyer
Steel, aluminum become costlier in America
Meanwhile, tariffs have made steel and aluminum costlier in the US. Therefore, the cost of everything made of steel has increased. This has affected the competitiveness of American products made from metals, making jobs there more expensive. Trump’s tariffs are causing high inflation. This has forced the Federal Reserve to increase interest rates. This, in turn, has slowed GDP due to less investment and a sharp increase in mortgage loan rates. This is affecting every American homebuyer and the building industry. A 2019 study in the Journal of Economic Perspectives found that by December 2018, Trump’s tariffs were reducing GDP by $1.4 billion per month. Consumers were losing $3.2 billion per month. A study by Federal Reserve Board economists Russ and Cox found that tariffs reduced employment in the US manufacturing sector. This is exactly the opposite of Trump’s intention. Deutsche Bank calculated that the tariffs affected the US stock market and reduced market capitalization by $5 trillion by May 2019.
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We have to understand the reason for trade losses
The Congressional Budget Office estimated that Trump’s tariffs (which were supposed to reduce over time) would reduce GDP immediately. Its impact will peak in 2020 and then subside. It projected that GDP would contract by 0.5% in 2020 and consumer prices would be 0.5% higher. Therefore, the tariff would reduce average household income by $1,277. Meanwhile, the US trade deficit grew under Trump until Covid shrank the economy. This showed that the trade deficit was not the result of unfair trade but of high fiscal deficit and easy monetary policy. It cannot be said whether this will reassure Swadeshi Jagran Manch or not. But the study of Trump’s tariffs should give pause to those in the BJP who think higher tariffs are the way to create more manufacturing and jobs.