Moneycontrol Pro Weekender | Trump’s trade boasts stir market optimism amid underlying chaos

US President Donald Trump

Dear Reader,

What are we to make of Donald Trump’s claims that India has offered zero tariffs on imports from the US, in order to seal a quick trade deal? Or his claims that it was he who negotiated a ceasefire in Indo-Pak hostilities? Or that the ceasefire was agreed upon because he threatened to cut off trade with the warring countries? All these statements have been brushed aside by India, which begs the question of what exactly the US president is trying to achieve. Is he just bragging? Or is there a method in the madness?

Trump’s backtracking on the massive tariffs with China give the impression of Trump the dealmaker, but the US rivalry with China is not going to end so easily and a Sino-American détente remains a far cry. For example, this week the Chinese complained to the UK about the US-UK trade deal, which includes scrutiny of supply chains and ownership structures to conform with US security requirements. This requirement, says China, is aimed at excluding it from supply chains -- they call it a poison pill. Another example this week were the curbs on the usage of Huawei chips anywhere in the world.

These examples illustrate the US will try to force other countries to toe its line on China, using the threat of tariffs. Make no mistake, the US will do all it can to ensure that it remains the global hegemon.

But this is not the first time that the global hegemon has faced a challenge. Giovani Arrighi, Italian economist and sociologist, argued that capitalism evolves through systemic cycles of accumulation dominated by successive hegemonic powers. Each cycle begins with a material expansion phase, where capital is invested in production, trade, and territorial control, led by a hegemon (such as Britain in the 19th century) that stabilises the global system through economic innovation and political-military power. Over time, diminishing returns from production (due to rising costs and market saturation) trigger a shift to financial expansion, marked by speculative capital flows and declining hegemony.

Arrighi said systemic chaos emerges during the financial phase, when the old order becomes unstable. This phase is marked by interstate rivalry, the migration of surplus capital to emerging regions, and social unrest. Arrighi identified four such global hegemons—the alliance between Genoese capital and the Iberian states in the 15th and 16th centuries, the Dutch republic in the 17th and 18th centuries, the British empire in the 19th and early 20th century, and the United States post World War 2.

And systemic chaos is exactly what the current free-for-all in global geopolitics and trade feels like. As this FT story, free to read for Moneycontrol Pro subscribers says, “It is analytically more useful to think of the tariffs as an accelerant of structural shifts that are likely to persist.”

Interestingly, each hegemon financed the rise of the next -- Genoese capital flowed to the Dutch; British debt fuelled US growth and US capital led to the rise of China. Do read Prosenjit Datta’s analysis of how low human development.

It is this looming loss of hegemony that the US has been desperately trying to prevent. What’s new is that the Trump administration recognises that the US is no longer capable of shouldering the burden of policing the world. Hence, the emphasis on its allies, such as Europe and the UK, paying their way. Consider, for example, Trump’s whirlwind tour in the Middle East. It’s an exercise in drawing the region away from China’s embrace, apart from getting more investments into the US. We wrote about the reported oil-for-gold agreement between Saudi Arabia and China.

We pointed out that the scaling back of tariffs does not signal any lowering of the strategic competition between the US and China. The fact remains that the US views China as out to challenge its hegemony. We underlined that the geopolitical rivalry between the US and China will remain. We looked at the impact of the trade pact on various sectors in India, arguing that the broader trend of supply-chain diversification is likely to persist, particularly in sectors like textiles and electronics.

The markets cheered the de-escalation in trade tensions and we outlined six scenarios that could shape the market’s next move. We also read the cues from this month’s Bank of America survey of global and Asia Pacific fund managers, emphasising the contrarian bets.

Against this backdrop, the market is optimistic that the worst is behind it, and we will soon see more trade deals. And with peak tariff anxiety behind us, the rush to gold may abate, as this FT story tells us, and our columnist asked whether the rally is over in gold. Investor optimism was also seen in the Indian market jumping up on Thursday in response to Trump’s comment that India had offered zero tariffs. We wrote that the market's knee-jerk positive reaction likely reflects relief that one more potential obstacle has been resolved following the brief conflict with Pakistan. Another reason for relief is that the Q4 corporate results indicate that the worst of the earnings downgrades too are behind us.

In an interview with Vatsala Kamat, S Krishnakumar, founder Lion Hill Capital, told us, “If one considers the Nifty earnings yield gap with the Gilts…the market looks attractive from a three-year perspective.” However, we wrote that a strong and sustained fundamentals-driven rally is critically dependent on growth in private capex, which is a victim of the prevailing uncertainty, and we advised investors “to add equities on corrections only”.

Perhaps we need to remember that there’s no going back to business as usual—the Trumpian theatre we are enjoying is symptomatic of a deeper transition in the global order. As Arrighi might say, the cycle is moving on—and this time, it’s not just about Trump, but about America’s uneasy reckoning with its place in a changing world.

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

Weekly tactical pick, Medi Assist, Baazar Style Retail, India Shelter Finance, Sai Life Sciences, Prudent Corporate Advisory Services, Which bag should you pick for your investment journey? Crompton Greaves Consumer, Berger Paints, Why the changes in Tata Steel are worth a look, Jubilant Foodworks, Eicher Motors, Cipla, SJS Enterprises, Aditya Birla Capital, Airtel, Britannia Industries, MapmyIndia, Tata Motors, SBI-Sumitomo deal for Yes Bank—who gains more? Swiggy, Pidilite, Navin Fluorine, What does Trump’s MFN clause mean for Indian pharma? Tata Steel, Suryoday Small Finance Bank, ABB India, GAIL, Hero MotoCorp, How Trump’s drug pricing regulation affects Indian pharma

Markets

Promoter holding declines in Nifty 500 companies

FPIs have more freedom in corporate bonds, but no desire to buy them

How have disclosures by REITs, InVITs improved?

Financial Times

Martin Wolf: The challenge of using excess global savings

The papal call for debt relief that might not be needed

Budget games, taxes and Treasuries

Can Europe finally fix its capital markets?

Companies & Industries

The Quick Commerce conundrum, Why this April is more than a seasonally slow month for life insurance,

Yes Bank, UK-India FTA impact on cotton textiles, India’s weight loss drug market, Growth outlook dims for room AC makers

Economics & Policy

Inflation has cooled off but there’s a catch

UK FTA

India’s labour data under new survey methodology reveals troubling trends for women

Green jobs: an emerging employment opportunity

High economic growth and low human development cannot a developed nation make

Pro Economic Tracker

Geopolitics & Geoeconomics

India must craft its diplomatic outreach to match its expectations

10 lessons from the 4-day conflict with China-backed Pakistan

Data Confirms PM Modi’s Warning: Global report shows terrorism is devastating Pakistan

Tech & Startups

Startup Street: Green light for the orange economy

Gen AI now writes over 20% of our code: Happiest Minds CEO Anantharaju

TCS is building thousands of AI agents for various industries: AI chief Ashok Krish

Personal Finance

The fine line between speculating and investing