Making America Great Again (MAGA) Effect Outside the US

Syllabus: GS 2/IR

In News

• Donald Trump’s aggressive trade policies, particularly the imposition of higher tariffs, have had global economic repercussions.

Key Developments Under Trump’s Economic & Trade Policies

• Tariff Impositions & Trade Wars:
  • Imposed tariffs on China, the EU, Canada, and Mexico, leading to retaliatory measures.
  • Affected global supply chains, economic growth, and market stability.
  • Increased costs for U.S. consumers and businesses, contributing to inflationary pressures.
• Challenges to International Organizations:
  • Reduced U.S. contributions to the UN, and NATO.
  • Signed executives orders to withdraw from membership of the World Health Organization (WHO).
• Withdrawal from Global Agreements:
  • Signed executive order directing U.S. withdrawal from the Paris climate agreement — again.
  • Exited the Trans-Pacific Partnership (TPP), affecting trade alliances in the Indo-Pacific.
• Impact on the U.S. Dollar & Inflation:
  • Higher tariffs raised domestic prices, impacting purchasing power.
  • Trade tensions led to fluctuations in global markets, affecting investor confidence.
  • Some countries explored alternative trade settlements, raising concerns about the U.S. dollar’s role as the global reserve currency.

India’s Response

• Since 2016, India has raised tariffs and increased protectionist measures, diverging from its earlier trend of reducing import duties.
• Despite internal pressure, India maintained higher tariffs but is now reassessing its stance in response to Trump’s trade policies.
• The Union Budget has reduced customs duties on various items, signaling a shift away from protectionism, aiming for better trade relations with the U.S.
• Average customs duty has been reduced to 10.66% from 11.66%.
  • Duty cuts on items such as bourbon, high-end cars, and motorcycles are intended primarily for Washington.
• The tariff cuts aim to address concerns over India’s high-tariff economy as global trade barriers rise.

China’s Consumption Push

• To counter the trade war with the U.S., China has introduced a comprehensive consumption boost plan, marking the most extensive policies in over 40 years.
• The plan includes raising workers’ incomes and improving domestic spending to shift from an export-driven to a consumption-driven economy.
• China aims to make people more confident in spending, with the government targeting around 5% growth.
• Analysts expect further stimulus in 2025 to mitigate the impact of U.S. tariffs.

Europe’s stand 

• European leaders are reacting to the U.S. threat to withdraw defense support, with Germany increasing defense spending and setting up a 500-billion-euro infrastructure fund.
• Although the short-term impact on GDP is uncertain, these measures aim to boost Europe’s security and economic growth.
• Some European countries are considering closer ties with Canada, possibly with Canada joining the EU, as Trump’s policies push Canada away.

Way Ahead

• Expanding FTAs: India has already signed key Free Trade Agreements (FTAs) with UAE, Australia, and ASEAN nations, and is negotiating deals with the UK, EU, and Canada.
• Boosting Domestic Manufacturing: The Production-Linked Incentive (PLI) scheme should be expanded to support key sectors like electronics, pharmaceuticals, and green energy.
• Promoting Agricultural & Service Exports: Strengthening global markets for Indian agriculture, textiles, IT, and pharmaceuticals.
• Strengthening WTO’s Role: India should push for fair trade rules, particularly for developing nations in the WTO.
• Championing BRICS & G20 Economic Reforms: India, as a key BRICS and G20 member, should lead discussions on de-dollarization, alternative payment mechanisms, and sustainable finance.
• Reforming IMF & World Bank Voting Rights: Advocating for greater representation of emerging economies in financial decision-making.

Source :IE