Trump’s Return: Assessing Implications for Global Trade and US-India Trade Ties
US President-elect Donald Trump made two promises that were not only laced with populism, but were also presented as the essential elements of his economic policy. First, he promised an across-the-board increase in import tariffs: 60% tariffs would be imposed on US imports from China, while imports from all other trade partners would range from 10-20%, and higher than 200% for vehicles from Mexico. Secondly, pledged the US would “take other countries’ jobs” if he returned to the White House, as he unveiled his plans to drastically reduce taxes and lower energy costs and regulations for manufacturers that relocated their production facilities in the US.
In other words, this is the blueprint for the transformation of an internationalist America that emerged in the 1940s into one which is protectionist to its core. One needs to hark back to the past to understand the far-reaching implications of this transformation that the world’s largest economy is poised to undergo under the Trump administration 2.0 for a century back; similar policies were adopted by the Grand Old Party.
Back to the 1920s
The promise of protectionism and limiting immigration proved to be the trump card for Republicans at the hustings during the 1920s. The Republican Party’s platform for the Presidential election in 1920 that helped elect Warren G. Harding as the President, reaffirmed the Party’s belief in protectionism and called for revision of tariffs “necessary for the preservation of the home-market, for American labor, agriculture, and industry”.[1] President Harding favoured economic independence, arguing that he wanted a “self-reliant America, self-reliant agriculturally, self-reliant politically, a nation free and independent to maintain its own great place in the world”, almost echoing Trump’s promise of using trade protectionism to “Make America Great Again”. The Harding administration oversaw the enactment of the Fordney-McCumber Tariff Act of 1922, which averaged 38.5% of the dutiable imports.
Calvin Coolidge who had succeeded Warren Harding as the US President in 1923, deepened protectionism by restricting immigration. He signed into law the most stringent federal law on immigration, the Immigration Act of 1924, which significantly reduced the share of the migrant population in the US during the next four decades, from approximately 13% to less than 5% in the mid-1960s. Unsurprisingly, Coolidge credited two policies that led to the economic growth of his era, and these included restrictive immigration and tariff protection, arguing that “under the helpful influences of restrictive immigration and a protective tariff, employment is plentiful, the rate of pay is high, and wage earners are in a state of contentment seldom before seen”.
Herbert Hoover won the 1928 Presidential election backed by the Republican Party that reaffirmed its “belief in the protective tariff as a fundamental and essential principle of the economic life of [the] nation”.[2] The Party justified protectionism arguing that adherence to this policy was “essential for the continued prosperity of the country” and that “the standard of living of the American people [were] raised to the highest levels ever known”. The ability to maintain high standards of living, according to the Republicans, came “from the wisdom of the protective legislation which the Republican Party [had] placed upon the national statute books”. Tariffs barred “cheap foreign-made goods from the American market” and provided “continuity of employment for … workmen and fair profits for the manufacturers”, while the restriction of immigration prevented “the glutting of … labor market”.
If protectionist sentiments unleashed by the Grand Old Party had resulted in the adoption of the most restrictive immigration act during Coolidge’s Presidency, Herbert Hoover signed into law the most culminated in the adoption of the Smoot-Hawley Tariff Act of 1930, which effectively raised tariff protection in the US by 40-60%. There is considerable disagreement among scholars regarding the extent of the increase in tariff protection caused by the Smoot-Hawley Tariff Act. However, what is beyond doubt is that US unilateralism in trade hastened the onset of the Great Depression, the worst economic crisis that humankind has seen, when the global economy was already on the edge after being impacted by the stock market crash of 1929.
US protectionism drew sharp responses from the country’s trade partners, all of whom targeted its goods with new tariffs, thus triggering the adoption of the “beggar-thy-neighbour” policies. The League of Nations reported, “The Hawley-Smoot tariff in the United States was the signal for an outburst of tariff-making activity in other countries, partly at least by the way of reprisals. Extensive increases in duties were made almost immediately by Canada, Cuba, Mexico, France, Italy, and Spain”.[3]
With the spread of protectionist policies in almost all countries, world trade was severely jolted. The League of Nations reported that the volume of world trade fell by 26% in 1929 and 1932, but the impact on the US was disproportionately larger. World imports fell by 25% between 1929 and 1932, whereas imports from the US fell by 49%. The US’s share of world exports also fell from 15.6% in 1929 to 12.4% in 1932, according to the League of Nations. The US was cut out of a substantial part of world trade during the 1930s, representing a significant loss of commercial opportunities. For example, US imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while US exports to Europe fell from $2,341 million in 1929 to $784 million in 1932.[4] These are the warning bells that the US President-elect must pay attention to for his promise to “Make America Great Again”, which can bring catastrophic consequences for the global economy, which it cannot afford at this juncture. The question is, would he remember the historical fallacies committed by Republicans a century ago?
Ignoring Past Fallacies
There are several reasons why Donald Trump will ignore past fallacies and implement trade protectionism, as he promised during his campaign. First, he has made campaign promises to “implement a 4-year national reshoring plan … and build America into the manufacturing superpower of the world”. His target is to ensure decoupling of the American economy from China, the ‘factory of the world’, and to end reliance on “Chinese medical and national security goods”.[5]
Second, while implementing this commitment, the Trump administration would be ably served by the Biden administration’s grandiose “industrial policy”, a policy that was resurrected after it was long banished from the lexicon of US policymakers. In 2022, Biden unveiled the National Strategy for Advanced Manufacturing “focused on efforts that revitalize the manufacturing sector, build strong US supply chains, invest in research and development (R&D), and train the workforce that will secure [US’] global economic position”.[6] Legislative support for realising these objectives was provided by the bipartisan CHIPS and Science Act of 2022 and the Inflation Reduction Act of 2022. The former was explicitly targeted to “create jobs, strengthen supply chains, and counter China”,[7] which are now part of the Trump narrative. Biden’s National Strategy for Advanced Manufacturing has zeroed in several critical industries, including semiconductors, electronics, pharmaceuticals, medical devices, communications devices, and automobiles and components.
Third, as President, Trump had pursued a neo-mercantilist strategy, targeting countries with which the US had a trade surplus. His administration had pushed partner countries to import, especially agricultural commodities, to reduce the deficit. Almost as if to remind the next administration of its task, Robert Lighthizer, the United States Trade Representative during the Trump administration 1.0, said recently that the United States must work towards eliminating its trade deficit with China and force a trade balance between equal imports and exports.[8]
While pursuing these objectives, Trump administration 2.0 will be handsomely served by its President’s fondness for using tariffs, which he described in a recent interview: “To me the most beautiful word in the dictionary is tariff. It’s my favorite word”.[9] Besides protecting the industries that his predecessor has prioritised for revitalising the manufacturing sector, the “Tariffs Man” has argued that raising tariffs would provide enough revenue to compensate for the lowering of taxes for individuals and businesses.
The Fate of WTO under Trump 2.0
The most significant fallout of Donald Trump’s penchant for doing bilateral deals was his antipathy towards the World Trade Organization (WTO). In 2018, he threatened to withdraw the US from the WTO, claiming that the organization treated his country unfairly. However, instead of withdrawing from the WTO, the Trump administration ensured that the dispute settlement body (DSB) of the organization lost its relevance. “Widely considered to be the jewel in the crown of the WTO”,[10] the DSB was left broken after the US refused to endorse the appointment of new members to the Appellate Body of the DSB, which meant that the settlement of disputes between members cannot be completed.
Given Donald Trump’s opposition to the WTO, it is likely that the multilateral trading system could be weakened further in his second term as president. However, if this happens, the global economy will be in jeopardy because a multilateral rule-based framework is essential for the orderly conduct of trade. In the absence of multilateral trade rules, powerful trading nations would use their brute-force to extract concessions from smaller countries. Hedging against such a situation is what the WTO promises. The risk of dismantling the WTO can be phenomenal.
Implications for US-India Trade Ties
It is a no-brainer that a protectionist America will hurt India’s interests. Higher tariffs would adversely affect the entry of Indian products into the country’s largest overseas market. Exports to the US have faced uncertainties during the past financial year and have declined and have barely recovered the lost ground during the first six months of 2024-25.
More importantly, most sectors focused on by the US industrial policy are also included in India’s PLI scheme, which is intended to fuel exports of manufacturing products from India. In his first term in office, Trump had targeted India for imposing high tariffs (he labelled India as “tariff king”) for shutting out American products from its market and maintaining trade surplus vis-à-vis the US. There was immense pressure on India to import more from the US, especially agricultural products, which India was able to resist to some extent.
After receiving massive support for promising trade protectionism to promote his country’s interests, it may be safe to assume that there would be little change in Trump’s attitude during the second term. He may continue to insist that India levels its playing field by increasing imports from its largest trade partner. One key issue that would be crucial for India, as the change of guard takes place in Washington, is whether Trump would honour the promises of Biden, including the recently inked deal to establish semiconductor fab unit in Kolkata.
Another issue of concern is that Donald Trump is opposed to economic alliances in the Indo-Pacific, especially the Indo-Pacific Economic Framework (IPEF) for Prosperity, which the Biden administration has inked with 13 partner countries, including India. In his first term, one of the first announcements that President Trump made after walking into the Oval office was US’ withdrawal from the Trans Pacific Partnership (TPP) Agreement, which his predecessor, President Obama had entered into with 11 countries in the region. Donald Trump has already stated that he would walk away from the IPEF, labelling it “TPP Two”. The present US administration has invested heavily in the IPEF as a bulwark against the dominance of China in this region and is President Biden’s version of the pivot to Asia, much like President Obama’s design of the TPP Agreement. With President Trump abandoning the IPEF by reverting to his abhorrence for regional alliances, geo-economic equations in the Indo-Pacific region could alter considerably.
Historically, bilateral economic relations between India and the US have not been easy, with the two countries differing on a slew of trade and investment issues. Disagreements over intellectual property protection have often reached a flashpoint, as the US trade administration has complained that India provides inadequate levels of protection and enforcement. These differences have persisted irrespective of whether there is a Democrat or a Republican in the White House and may, therefore, play out in the future.
At the same time, however, India and the US have in place several bilateral processes that can help not only navigate through their differences but also strengthen their relations. Above all, Prime Minister Modi and President-elect Trump have excellent personal relations; how they work together to build a better future for both countries will be watched with interest.
Endnotes
[1] Republican Party Platform of 1920, June 08, 1920, accessed from: https://www.presidency.ucsb.edu/documents/republican-party-platform-1920.
[2] Republican Party Platform of 1928, June 12, 1928, accessed from: https://www.presidency.ucsb.edu/documents/republican-party-platform-1928.
[3] Irwin, Douglas. 2011. Peddling Protectionism: Smoot-Hawley and the Great Depression. Princeton University Press Princeton. p. 170.
[4] Protectionism in the Interwar Period, Milestones in the History of U.S. Foreign Relations, United States Department of State, accessed from: https://history.state.gov/milestones/1921-1936/protectionism.
[5] Issues: Big Ideas, Bold Ambitions and Daring Dreams for America’s Future, accessed from: https://www.donaldjtrump.com/issues.
[6] US Department of Commerce. 2022. Announcing the National Strategy for U.S. Leadership in Advanced Manufacturing. October 7, accessed from: https://www.commerce.gov/news/blog/2022/10/announcing-national-strategy-us-leadership-advanced-manufacturing.
[7] White House. 2022. Fact Sheet. August 09, accessed from: https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/.
[8] Tyson, Ann Scott and Laurent Belsie. 2024. Trump prepares for ‘economic warfare’ with China. Christian Science Monitor. November 15, accessed from: https://www.csmonitor.com/World/2024/1115/trump-tariffs-china-us-trade-war-deficit.
[9] Tariffs are my favourite word: Trump pushes economic plan in Chicago. Indian Express. October 16, 2024, accessed from: https://indianexpress.com/article/world/tariffs-my-favourite-word-trump-economic-plan-chicago-9622170/.
[10] WTO. 2009. WTO Disputes Reach 400 Mark. 6 November, accessed from: https://www.wto.org/english/news_e/pres09_e/pr578_e.htm.
Biswajit Dhar is a former Professor at Jawaharlal Nehru University and presently a Distinguished Professor at Council for Social Development, New Delhi.
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