Even as Donald Trump has held back tariffs on Canada and Mexico for one month in lieu of enhanced border security measures to address US concerns over illegal immigration and drug-trafficking, US imposing tariffs will be a lose-lose scenario for everyone involved, including India, says Neelkanth Mishra, Chief Economist at Axis Bank and an authoritative voice on Indian economy and markets.
“If anyone is under any illusion that these tariffs somehow help India, I think they are mistaken,” Mishra argues. Unlike traditional wars, which—despite their devastation—can sometimes fuel economic growth, trade wars are explicitly designed to inflict economic harm.
“The First World War, for three to four years, felt like a big boost to the US economy. The Second World War as well, because most of the damage happened in Europe, and they actually benefited the trade.” But this time, the objective is pure economic damage.
Even the US acknowledges the self-inflicted costs. “There are theoreticians who are saying that this is like mutually assured destruction,” Mishra highlighted, adding that if Canada and Mexico respond with equal aggression, it could force the US to rethink its stance. With Europe now also in the crosshairs, the fallout could be deepened.
The impact is therefore pretty clear: Global growth takes a hit, prices rise, and demand contracts. “If you're setting up a factory anywhere in the world, you would think to yourself, ‘Let me hold back for now’.” Thus, a realisation of how the uncertainty alone is enough to stall investments.
And in fact, retaliation can be even more contagious. “If the NAFTA allies, which are the closest allies you can think of, are actually going to retaliate with tariffs, it emboldens everyone else” to follow suit. If that happens, Mishra warns, “what is the US left with?”
As for India, there are narratives around how India could gain because of additional tariffs on other economies, especially, China. But this assumption is erroneous, Mishra says. Apart from stoking inflation, it could dampen sentiment around private investments which will be critical for India to sustain its growth trajectory.
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