Since April 2, when varying levels of tariffs were imposed by the US on 60-plus allies and rivals, global markets have faced volatility. Some nations, like Canada, China and the European Union, have retaliated or so threateningly. Others, like India, Britain, Australia, etc., have chosen reticence, to play a waiting game. Nevertheless, the markets of both categories faced carnage. Basically, US president Donald Trump’s unpredictability is fuelling chaos.
The Chinese foreign ministry spokesperson argued, “We Chinese are not troublemakers, but… intimidation, threat and blackmail are not the right way.” The Chinese possibly assess that the aim of the tariffs is not simply to balance trade but to enfeeble the Chinese economy as part of the larger US strategy to contain China’s rise as the principal US rival. Consequently, when the Chinese put retaliatory tariffs, the US has ratcheted up those on Chinese goods to 104%. Is the US setting an example for other nations threatening retaliation?
The European Union, an ally and not a strategic rival, received early signals when the US defence secretary, Pete Hegseth, and vice president, J.D. Vance, during their European visits, belittled the NATO alliance and its support for Ukraine in its war with Russia. President Trump repeatedly alleged that the US is getting “ripped off” by friends and foes alike. The trade imbalance figures, as per the US president, grossly exceed actual figures. That is why he has proposed casually that the EU nations should buy US oil and gas worth $350 billion to neutralise the negative balance. In reality, the EU has a $171 billion surplus in goods trade, reduced to $52 billion once the US’ surplus in services is adjusted.
This encapsulates the problem of dealing with the US today. Firstly, Trump’s numbers are make-believe and fact-free. Secondly, his objectives are vague and variable. For instance, when “zero-for-zero” tariffs are suggested as a solution to the US angst over higher tariffs of others, the US dithers. On April 9, the EU voted to counter US’ reciprocal tariffs applicable from the same day. These tariffs would range up to 25% on US goods worth around 22.1 billion euros. Interestingly, they target products from the so-called “red states”, which are pro-Republican. Thus, the products will be agricultural and industrial commodities, like soybeans, meat, tobacco, iron, steel and aluminium. According to Politico, agricultural products are from states that voted 61% in favour of Trump in the 2024 election. From May 16, a second range of products would face tariffs. China is similarly focusing on items that hit traditional Republican supporters.
China had successfully tried this tactic during Trump’s first term. The difference, though, is that Trump is now surrounded by sycophants and inexperienced advisers. Also, Trump is in his second and final term, despite his occasional remark about seeking a constitutionally barred third term. Thus, he is not worried about the immediate political fallout of his policies. But all Republican members of the House and one-third in the Senate, who face a midterm election in November 2026, cannot emulate him. By the end of this year, just eight months away, campaigning begins for that crucial contest. The loss, despite Elon Musk’s full support, of the Republican candidate for the Wisconsin supreme court may be a sign of public opinion veering away from Trump and the Republicans.
It, thus, appears that the race is between Trump being able to coerce nations with imbalanced trade with the US to seek trade deals, mostly on US terms. On the other hand, if China and the EU can persist with retaliatory tariffs and allow the suffering in the US to mount, Trump may start looking for a face-saving retreat. For instance, the US soybean producers have already, in March, condemned the tariffs and urged their review. The Economist magazine analyses: “Why China thinks it might win a trade war with Trump”.
The Indian strategy of appeasement without compromising core interests, like protecting the Indian agricultural sector, can only work if Trump starts feeling the heat domestically. One solution is to buy more oil and gas from the US, but freight is an issue. Switch-trading may be possible if quantities are not too large. Another proposal is to lower Indian tariffs on cars. But India would have to treat the EU similarly. The US cars, with their manufacturing already disrupted by tariff-based disputes in North America, may be unable to compete with Indian domestic and European vehicles. American producers find the left-hand-drive Japanese market, like that in India, already challenging.
False news about Trump reviewing tariffs suddenly saw the US markets jump. This got negated after official denials. India has a margin of safety due to its large domestic market and limited exposure to global supply chains. That provides opportunities as a new trading order emerges. It also presents dangers due to the government not openly exploring solutions that bypass the US.
KC Singh is former secretary, Ministry of External Affairs
