Trump and the World

Anup Sinha

One has to be flummoxed by the approach of the Trump administration on matters of economic policy, foreign policy, education and immigration. If Trump is able to achieve even half of Project 2025, it will change, beyond recognition, the landscape of USA’s economy and society. Not only that, the rest of the world will have to be changed too–trading patterns, payment systems, military alignments, geopolitics, labour markets and the risks of global existential threats. How could so much damage be inflicted, in so short a time, affecting so many people, with so little resistance and opposition? It is unlikely to be a completely random set of events, though it is very difficult to delineate a coherent map of where the nation is heading?

Let us assume, for a moment, that there is a vision and objective behind all that is happening. The small pieces of ideological positions, gleaned from statements by the politically powerful people around Trump, one can, however, get a picture of outcomes. Let us first take the obsession with tariffs. The administration is continuously being erroneous on what constitutes a tariff and who pays for it. The basic definition is wrong. Leaving that aside, Trump appears to canonise the USA of the 1880s and 1890s. There were no Federal income taxes then. Tariffs were imposed widely and were considered import sources of fiscal revenue. This was the era when the US economy’s strength was on the rise, and the British Empire was facing stiff competition. In those days, new technologies centred on electricity, railroads, roadways, automobiles, iron and steel were creating enterprises and infrastructure that was emerging for the first time in the world.

Trade was being opened up on a massive scale. The debate for free trade was being led by British intellectuals, trying hard to hold on to British economic power. In this sense it was an era of global integration, Britain trying to retain markets, the USA trying to create capacity and penetration into new markets. The payments systems based on the gold standard and the silver standard though running into sporadic crises, still held sway. The crux of manufacturing growth was essentially to protect the cutting-edge technologies from global competition, using the benefits of that growth for entering international markets. The British had done it, earlier, with guns and tariffs; the USA was trying to create durable competitive advantage behind tariff walls. The expansion of free trade had, even in those days, created resistance because of falling prices and shifting of production. In short there was a tension between the supporters of the old and dying ideological dominance of mercantilism who thought a trade surplus created wealth for a nation. Those supporting free trade were of the opinion that integrating world markets led to overall rise in production and national wealth. A deficit in trade would imply that a country was spending more than what it was producing and hence the deficit would lead to foreign savings coming in to the deficit nation and these flows could be used productively. Free trade was supposed to be a win-win situation, while tariffs and restricted trade was considered to be losing-losing proposition.

A simple example will bring out the essential logic behind market expansion. Suppose there are two provinces within the boundary of a nation state. Should trade be restricted between those two geographies? If the answer is yes, then trade should be restricted within a province, then between districts and counties in the province, leading to an absurd situation of one economic entity producing everything it needs. On the other hand, the more trade is expanded, the greater is the potential for producing more and consuming more. The only moderating influence in integration could be political issues and some compelling strategic issues. Anyway, the mercantilist world view died soon after, to be dominated by the ideology of free trade.

Let us try and deconstruct the Trumpian pronouncements and see how each one of the more important ones could affect the US economy, and then also see how each one of them might trigger reactions from the rest of the world. Let us begin with tariffs as “tax” on USA’s trading partners. This is wrong; the extra cost would have to be borne by the US consumer. The first and immediate impact of tariffs imposed by USA would be to raise domestic prices of imports, contribute to inflationary pressures, and lead to unemployment in the trade services sector of the economy as trade related business shrinks. The FED, apprehending inflationary pressures would keep interest rates high. None of these would be good news to the US consumer, and even to the producers who depended on imported raw materials like steel and aluminium. This would, quite unsurprisingly, lead to a reciprocation of tariffs imposed on US exports to their trading partners. The trading partner, when faced with US tariffs on their (the trading partners) exports would be likely to face a lower volume of demand from US buyers. In a classic tit-for-tat response by the tariff facing country, it would hit back, setting off a series of global restrictions on the earlier relatively more free trade.

In a slightly more optimistically nuanced argument, it may be claimed that in USA, the domestic production of steel and automobiles would be rekindled. It would take a long time; the product would be costlier than that in many countries of the world, where production shifted precisely because of cost-advantages. The second, a related, argument often given is that the foreign country would jump the tariff-wall and begin production in the tariff-imposing country so as to not lose its market. If this outcome occurred, it would give very little bargaining power to the host nation. Employment could come from overseas, and investments from profits could be directed elsewhere. It is also patently evident that investors would not even think of jumping tariff walls when there is terrible economic and political uncertainty in the host nation. None of the two arguments given above are feasible in Trump’s USA. Any advantage that one can coherently argue for, in favour of tariffs, is impossible to establish.

Let us come to the next, related, issue of foreign policy and global alliances that USA has established since the end of the Second World War. If it pulls out of NATO, gets closer to Russia and gives unquestioned support to Israel, USA will convert friends and allies into enemies. These countries, like Canada, Japan or those in the European Union will be compelled to arm themselves to the teeth. Military spending will increase dramatically in these countries, making the world a more dangerous place. Even if that does happen, the USA would still remain militarily much more powerful than its erstwhile allies of the Western world. Trump, absolved of his commitment to defend his allies of NATO, could use his fire-power to extract whatever he wanted from any nation on earth. A Global Colonialism Mark 2.0 with USA as the great imperium. It may be worthwhile to recall that currently the USA’s military spending is more than the total spending by the next 16 countries put together.

As a byproduct these nations could see a boost in their growth rates, but also a rise in deficits and an increase in the debt burden. The European Union would have to do this together since no one has exclusive control over the money supply–euros. As far as the USA is concerned if it reduces military spending and other international contributions to its soft power, like the disbanding of USAID could leave the USA more vulnerable to attacks. Apart from that, a sudden decrease in spending on the military-industrial complex would reduce employment and output in the USA. On the other hand, if it increases spending on domestic military preparedness, it will run the risk of raising fiscal deficits. To keep that under control, as Trump wants fiscal discipline, it will have to cut down severely in public spending on health, education, social security, environmental protection and so- called “government inefficiency”. The Trump administration is already doing that with tempestuous force and haste. The changes, while shoring up the military, would lead to a sharp decline in employment, as well as discernable reductions in the quality of life of the not-so-well-to-do US citizens.

Another area where the Trump administration is determined to destroy is the higher education system of knowledge production. According to Trump and his close followers this is where the challenge to nationalism and American values lies. The Vice President Vance has openly declared in a public lecture that “we have to attack the universities” and claimed that “the professors are the enemy”. However, USA’s biggest sphere of influence and soft-power was in this field. It virtually completely controlled the production and dissemination of new knowledge, especially in the areas of biology, data science, finance, and cutting-edge technologies like AI and robotics. These are areas where the USA has the new competitive advantage as it gave up the earlier advantage in brick-and-mortar industries of the twentieth century. Declaring war on the university system will make USA lose its, arguably, biggest, positive influence on the rest of the world, and help create new knowledge hubs in places like China, Europe and Japan.

The last but not the least is the attitude to immigrants and foreigners living and working in the USA. Let us leave aside the historical fact that this was indeed a nation of immigrants, who violently killed off the indigenous population to take over the land. Let us focus on the last three decades which is the reality of the here-and-now for Americans today. Two trends can be observed. One is that as the leader of the emerging new areas of knowledge and technology, USA required the presence of the best minds and intellectual talents within its boundaries. The research departments of US universities, particularly in the very best ones, are almost fully staffed by foreigners–teachers, students, researchers. Almost all of them came to USA in the last three or four decades at the most. USA’s higher education system, along with the top five or ten giant corporations, would simply collapse if all the “criminals and gang members” were deported.

On the other side of the labour market are the low-skilled migrants, some legal and some illegal, who have USA entered for a better life. They have been largely allowed to by a lax administration for the simple reason that they are required for the survival of the US economy. There are many menial jobs that US citizens are loath to do. Foreign migrants will do these happily at less than the minimum wage. Keeping them illegal is advantageous to certain sections of US business. No benefits, beyond a very low wage, has to be paid, and they can be hired and fired at will with the constant threat of Immigration police whisking them away. If they are taken away, unemployment will increase, and costs go up if white US citizens are to do these jobs at much higher wages. Profitability of many sectors of the US economy would decline. Regarding the incidence of crime, nowhere is there in any credible study that confirms illegal migrants are the source of enhanced crime rates. Nowhere in the world is the basic survival of the economy so dependent on foreign workers present legally as well as illegally.

Each piece of Trump’s policies is likely to have adverse outcomes for the American economy and society. The impact on the rest of the world is also mixed. Global economic growth rates will fall. Geopolitically it will be a more dangerous place with many more nations becoming armed to their teeth. If one is to take all of the more important elements and assume that their effects will come simultaneously, then the outcomes could be order of magnitude more severe in terms of the daily costs of unemployment, inflation and uncertainties. Add to these the sudden rise in the perceived existential threats like nuclear war, climate change (Trump has started the disbanding of the Environmental Protection Agency), and new technologies that have the potential to dominate the human race. Resistance to any of these is likely to be low and disorganised.

The power to be reconciled to the immediate surroundings is a noticeable characteristic of people. Even with stable market economies and peaceful democratic governments, wars have occurred, oligarchies grown, genocides taken place, economic and social inequalities exploded. There are other forces too–debates in ethics and public policy, those who attempt to establish the importance of tolerance and diversity, those who care about the future of the world and seek harmony with Nature. Some are dangerous trends. Others are exciting trends that call for sanity and moderation. All, however, are real. There is no inevitability in any economic structure or form of government. It is always a matter of conscious choice and a thousand struggles towards arriving at that chosen goal.

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Frontier
Vol 57, No. 49, June 1 - 7, 2025