The Globe in Turmoil

"The world has become a boiling pot: Wars in Eastern Europe and the Middle East, tensions unleashed by expansionist and protectionist moves, such as China’s moves in Taiwan and South China Sea regions or Trump’s tariff and trade wars, terrorist instigation escalating to full-fledged conflicts such as with Hamas-Israel, and Hamas-type terrorist action against innocent tourists by Pakistan in Pahalgam, (J&K). All these actions are bringing devastation and destruction—it is easy to get the pot boiling, not so easy to turn it off"

The world has become a boiling pot. This has been happening for some time and things are deteriorating further every day. There is the Russia-Ukraine War, the Israel-Hamas war, the Israel-Hezbollah conflict, Israel Iran tension, and the problem in Syria leading to the ouster of Bashar al-Assad. Today, another emerging tension zone is around us after Pakistani terrorists killed our innocent tourists in Pahalgam (J&K) on 22 April. Prime Minister Narendra Modi has announced unimaginable action against the terrorists and their handlers. As on date, only diplomatic actions and counter actions have been announced, but by the time this column reaches the readers, something big might have happened.

Expansionist China

China with its expansionist policy has not changed, and its lust for grabbing Taiwan still continues. The South China Sea remains a troubled area, with China adding to its logistics and supremacy attempts there.

Things do not stop with global conflict zones. Since the coming of Donald Trump as the US President for the second time, we are witnessing tariff wars getting ignited everywhere, with India and China being the two epicentres. It may not be practical to focus on all the ingredients of the boiling pot in this column, but a modest effort is being made to catch glimpses of some recent ones.

Tariff war

The tariff war has its origin in what President Donald Trump promised to his MAGA (Make America Great Again) voters. Trump had reasons to believe that America has been losing money over the years in several ways, and one big way was the adverse trade balance with most of its trading partners. The US goods trade deficit with China was $295.4 billion in 2024, which represented 5.8 per cent increase from the previous year. The US imported $438.9 billion worth of goods from China, while exporting $143.5 billion worth of goods to China. Globally, the cumulative trade-deficit of the US in 2024 was $918.4 billion. The import of goods and services in 2024 by the US was $4110 billion, while its total global exports for the same period was $3191.6 billion. For the US, there has been a persistent trade deficit over the years, mainly with China. Today, China’s deposit in US bonds is roughly $760 billion, which indicates China’s earnings and investment, mainly from its exports to the US.

The Americans believe in good consumption and they do not hesitate in using their credit cards vigorously for that. American factories are not able to compete with cheaper imports, particularly from China, and this affects production of goods and employment in the US. This is one reason why the richest economy is getting affected. Trump wants to correct this in a short time by increasing tariff on imports. He believes that this would make imported goods costly in his country and that his people will not purchase such goods, and this in turn would help production in America.

Trump has announced a tariff of 245% on imports from China, which he considers the main villain. He has announced reciprocal tariff for all other countries. For example, the reciprocal tariff for India has been pegged at 26%. India’s neighbouring countries have been given a much higher reciprocal tariff. After China, the USA has imposed the highest penal tariff on Mexico and Canada. Reciprocal tariff in the range of 11% to 50% has been imposed for 57 other countries. The minimum compulsory tariff for all countries is 10% and sector specific 25% tariff remains in force, in addition to the reciprocal tariff. The reciprocal tariff was scheduled to take place with effect from 9 April, 2025, but now a stay of 90 days has been declared.

Disrupted supply chain

Tariff declaration by the US has an adverse impact, especially for China and even for its allies. China has declared tariff of 125% on the US goods. Canada, Mexico and EU, have also given threat warnings of higher tariff on the US goods. The result is a threat to the supply-chain all over. The capital market fell, but recovered when reciprocal tariff was stayed for 90 days by the US. China has threatened to stop its export of rare earths to the USA, of which it has control over 70% of the world’s deposits. Rare earths are necessary ingredients in the manufacture of electronic goods, cars, and even war equipment.

The only saving grace is that most of the countries (China not so far) have agreed for mutual trade agreements with the US. India has been one of the first countries going for a friendly trade agreement with the US, and even our Prime Minister was among the first callers to Trump in February.

"Things do not stop with global conflict zones. Since the coming of Donald Trump as the US President for the second time, we are witnessing tariff wars getting ignited everywhere"

Inflation fears

People, the world over, are worried about the rising prices of the goods they import for consumption. Americans are no exception, as inflation is also haunting them. There are economists who foresee that the world, America included, may see stagflation if the tariff war is not reconciled soon. Trump has taken a clever step in increasing the tariff on goods from smaller countries around China, like Vietnam, Laos, Cambodia and Thailand, so that China may not ship its goods to the USA under the names of these countries. The trade tariff-war is not done in isolation, as it further gets inflamed with more levy on Chinese ships coming to the US, and actions by the US in the Panama Canal transit of goods aimed at reducing China’s control in that region. The tariff imposition by US as of today is on stay, but not the trade war, as everyday something new happens that reignites it.

The tariff war may not be as bad for us. The US trade deficit with India was $45.7 billion in 2024. India’s exports to the US in 2024 was $86.51 billion, against imports of $45.33 billion. The mutual trade agreement between India and the US is almost at the completion stage, and it may be the first such mutual arrangement at this stage of tariff war. It is believed that India will try to reduce the US trade deficit without impacting our core sector.

Not so bad?

India is a big country with the highest population and our consumption mostly depends on our own production, except for items like oil and gas, which we have to import. We also import war equipment. Our economy is not export-based like that of China, and hence there are reasons to believe that we may benefit from the tariff war. Some factories in China, owned by non-Chinese companies, may shift to India to escape the heavy burden of tariff of the US. Apple has already announced that it may fully shift its iPhone production base from China to India.

Trouble since partition

Our problem with Pakistan is almost a permanent thing since partition. Today, we are the 5th largest economy, and Pakistan is almost a bankrupt country. This time Pakistan-aided terrorists killed 26 innocent tourists in Pahalgam. India may do something big to avenge this barbarous act. India has already announced the suspension of the 1960 Indus Waters Treaty. This will impact the river flow of Indus, Jhelum and Chenab, to Pakistan. The government has announced that short-term, medium-term and long-term measures, will be taken so that Pakistan will not get water from our land. Pakistan has reacted with threats of flow of blood if there is no flow of water. Countries all over the world have sided with us and we are virtually free to take any action. Pakistan is giving threats of nuclear attacks if we go for something big, but India will do what it has to do. We have to attack not only the terrorists, but also their backers.

The Russia-Ukraine war is continuing despite the tough stand taken by Trump. US Russia and US-Ukraine talks to stop the war are still going on. The world has to ensure that there is no boiling pot of conflicts and tariff wars. There should be peace and tranquillity, and no self-created economic problems. So powerful is the light of unity that it can illuminate the whole earth. Alone we can do so little; together we can do so much!