Way Forward for Asia: Coming Out of the Trump-Led Imponderables With Penalties

The world is currently facing a time which is ridden with imponderables, negating the possibility of looking at or predicting the next turn of events – thus setting a pattern close to the notion of “fundamental uncertainty” where the outcome at each moment is shaped by the actions just before, which brings shocked surprises to others facing it.

The time as above has been triggered by the US President Donald Trump, over the last seven months since he came to power. For Trump, the major goal to be achieved is to make America back to its ‘greatness’ again, (Make America Great Again (MAGA)), as he had promised to the voters in his election campaign. Measures he picked up to attain the lost ‘greatness’ include tariff escalations and threats of further cuts to imports from specific countries to USA the value of which he considered as excessive.

The basic range of tariff duties levied by US varies from 10% (for countries having a trade deficit with US) ,15% (for those having trade surpluses), 20 % to 39% (those yet to have ‘deals’ with US). Actual rates are often more, as with India at basic 25% plus 25% penalties for the trading with Russia.

Goals behind tariff escalations

Goals behind the above escalations, as targeted by Trump, not only include reductions in aggregate US imports but also a relief to the large deficits incurred by the US in her domestic budget, which in 2024 amounted to $1.83 T in 2024. Revenue from tariffs, as he expected will contribute to the much needed finance to reduce the deficits.

The large budget deficits reflect the rising value of Federal Debt which, exceeding US GDP since 2013, is now more than 130 % of the latter. As for the Federal Debt held outside the country, a drop in new US borrowings, is already in the offing; with China, the major holder of US Treasury and other bonds curating her stock, and similar other reductions on part of other overseas lenders.

Their motivation, to diversify the composition of foreign assets in face of possible declines in the US dollar rate, will not work well for Trump or his goal of MAGA!

The targeted outcomes of reduced imports and increased tariff revenue, however, may not necessarily come about if the market fails to make those possible. Indeed, the mercantilist goal of having trade surpluses to benefit the nation , as aimed by Trump, is not workable in the current days of reciprocity as well as options open in integrated markets.

As for the Trumpian goal of having an improved US trade balance, a reduced (or negative) trade balance for her trading partners can also generate recession in latter, spoiling the possibility of those countries having additional imports from USA. Reduced trade-competitiveness of US imports from the additional tariff-ridden trade partners, contributed by the newly charged tariff duties may come with the second-round recessionary impacts in those countries to cut back possibilities of demanding additional imports from USA.

On the whole, the grand plan for Trump’s MAGA is unlikely to prove a success to bring it back again !

How it impacts trade partners like India?

This brings us to the possible impact of Trump-led policies as are faced by the overseas trade partners of US. We concentrate here on the developing region where the related disruptions can be of greater significance in terms of the low levels of income for majority of their residents and the volatile growth on their economies.

We set our analysis here on the situation in India, a country held by Trump as one of those penalised for the wrong deeds, at the moment at the highest tariff rate of 50% at end of the latest penalty of 25% added to the prevailing penalty rate fixed at 25%.

The current official response from the official agencies in India on imports of crude oil from Russia include an assertion that India will continue with the current trading arrangements with Russia, which is of benefit to her economy. In addition to the discounted price offered on such imports of Russia oil, the arrangement also include the use of the local currencies, the rupee and the Russian rouble, for settling trade balance between the two countries.

Thus, India has been meeting Russia’s trade surpluses by Indian rupee with special arrangements between the two countries. We may recount the use of similar payments arrangements prevailing in past between the erstwhile Soviet Union and India to settle the trade imbalances between the two countries. Those arrangements were equipped, in addition, with a clearing account which often provided additional demand for Indian goods from Russia, which usually had a surplus with India. India’s current Rupee payments arrangement with Russia provides a similar opportunity of saving dollar payments to meet her trade deficit with Russia.

Current destinations of exports from India

Looking at the shares of different regions in India’s export basket for 2024-25 as per the Exim Bank of India, North America contributes 20.7%, of which US shared 17.4%. While the latter comes out important as the share destined to a single country, especially with Europe as a whole providing 22.5% of the aggregate, one can here compare the respective shares of Asia (Far East and Middle East) and Latin America at 39.8% and at 4.8% of India’s aggregate merchandise exports in 2024-25.

Considering the above fact that India’s exports to the global South in recent times has of late been about 45% of the country’s aggregate merchandise exports, can there be too much of a problem if the US share, subject to additional tariffs, slides in the downward direction, probably as targeted by Trump!

To make the share higher

The share can be higher with India’s move to collaborate by having bilateral free trade arrangements as well as by participating in the currently active groups in Asia like the ASEAN. Finally, the BRICS + nations can be tapped to make further use of the ongoing de-dollarisation move by initiating use of local currencies to settle payments against the bilateral trade surpluses and deficits.

Apart from Russia, two more countries including Indonesia and UAE have started using rupee and their own currencies to settle trade with India. While Indonesia is already a member of BRICS, UAE along with five others comprise the six Brics +, all of whom , along with the original six, share the common goal of having a new financial architecture which will be free from US hegemony.

Trade with USA can be of more significance with services. While India has gained a share of 4% in global trade in services, USA controls 145% of the same. Despite India’s supremacy in providing telecom, computer, Business Processing and IT related products, USA still may have control over supply of crucial intermediates needed by India. Those may be the grey areas which need concerns and some adjustments with other countries.

Possibilities for India and other Asian countries, of having more trading opportunities with the Asian economies as well as the use of local currencies by replacing dollar in settling payments can be an useful way out of the current phase of threat and further reprisals as have been set in motion by the self-appointed emperor of the world, Donald Trump!

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