One of our Presidents Donald Trump’s favorite phrase is “I know it all.” Social media is full of the number of things Mr. Trump knows. Apparently, he didn’t know that the bond market could pull the red carpet out from under his feet. When some Japanese began selling U.S. bonds, the alarm in Washington continued, a man who said world leaders had lined up to get him to impose obligations and “kiss his ass” and suddenly retreated. Mr. Trump’s tariff tantrum began with an explosion and ended in a whisper. It may not be over yet, but the hissing has gone.
Unless he will of course move from trade to territory, occupy the Panama Canal and plant the American flag in Greenland, the world will no longer take President Trump seriously. Trump’s destructive potential remains high. After all, he remains the head of the world’s most powerful government. However, there are not many headers to show. Any scammer can win the election. Running a government and managing a country is a completely different ball game.
Among all trading partners, the 90-day rate hike on tariffs increased by 10% in total and the impostor of China was 145%. Although this brings some relief to the market, it is not an alleviation of uncertainty caused by policy. The whimsical way President Trump covers key policy tools has had two consequences. It formulates policy-induced uncertainty among the United States and its allies and friends in the economic front and broken trust.
The key goal of the discipline of economics is to reduce uncertainty in the areas of economic activities of enterprises and families. The discipline attempts to solve this task based on two very different premises and perspectives. Mainstream economics (liberal and neoliberal) respond to the challenges of uncertainty by developing theorems and theorems on the behavior of economic factors and the impact of economic tools on human behavior. People are expected to respond to different economic signals in some predictable and rational way, ceteris paribus or “all other things equal.”
Another view is that actions and reactions from numerous individuals and companies are unlikely to produce predictable results. In order to reduce the uncertainty of income flow, the supply of goods, savings and investments, etc. are government intervention, planning investment, allocating prices, etc. Socialism, planned and regulated economies attempt to reduce uncertainty by increasing the role given to the government in the economy. Even in market-based private sector-led economies, governments are expected to intervene to reduce uncertainty.
However, from time to time, government intervention may lead to reduced uncertainty, but rather to uncertainty. The demonetization of monetary notes is such an intervention that disrupts economic activity by raising uncertainty about businesses and households. Indians are familiar with the unstable consequences of economic uncertainty arising from the November 2018 decision to cancel monetization. The trigger rate of tariffs by U.S. President Donald Trump is another example of uncertainty caused by government leaders with whimsical decisions.
When political leaders are elected to public office, they do not cause greater trouble to businesses and families, but create a stable and predictable environment. Of course, President Trump wants to undermine rather than stabilize. However, destruction is a one-way street, a journey without a map.
The institutional response of most democracies to possible disruptions that may be caused by whimsical and authoritarian governance is to establish stopping and balance and due process in decision-making. This not only gives different perspectives, but also provides time for all actors to consider and calculate the possible impact of alternative policies. This is why the U.S. Constitution requires major policy decisions to be reviewed by the U.S. Congress, while the Indian Constitution establishes the upper and lower houses of parliament.
When even the authoritarian heads of democratic governments, bypass the unified body of institutions of institutions and steadily announce that they do not consider bad policy decisions, they will impose costs on the economy as well as all participants, companies, businesses and families. In theory, free-market, private-business economies should have their own internal stabilizers, but the market is confused when policy-induced uncertainty gets in the way you. However, market dynamics ultimately forced President Trump’s hand.
Perhaps it’s not just the bond market that holds Mr. Trump’s hands. Consider protests in various cities in the United States. Even if Mr. Trump could see them as Democrats and their protests as protests of opposition frustration, even Republicans began to have a second idea, as often happens in India’s ruling parties. The growing anger within the U.S. Congress and the way Trump administration officials escalated at congressional hearings really resonated with the public.
Finally, there are global public opinion and reactions that friends and allies need to consider. India certainly believes discretion is the heroic majority. The Prime Minister, Minister of Commerce and Industry, and Minister of External Affairs, who are in normal communication, chose to remain silent, which brought reference to the early completion of the India-US Bilateral Trade Agreement (BTA). Even though discussions on the BTA are underway, there has been a 10% tariff rate hike, but this has not been said yet, except for the lawsuit statement issued by the Minister of Commerce that India will not accept any “transaction guns” and that it will adopt the “India First” policy.
Finally, the most important political outcome of Trump’s tariff tantrum is a sudden and enormous loss of global trust in the current U.S. leadership. From Canadian neighbors to distant partners in Japan, from European allies to friends in Asia like Singapore, in fact, most countries will be very wary of imposing any trust in the Trump administration. The combination of arrogance and incompetence that we often see in Indian political leadership throughout the field has now defined the Trump administration. Who wants to risk trusting such a whimsical leader?
The author is an advisor to writer, former newspaper editor and prime minister Manmohan Singh
