The US Boomerang

“Beneath the thin veil of

optimism lies a graveyard

of shattered dreams, where

the tombstones bear the

epitaphs of hope betrayed.”

– Anonymous

For the millions who dream the ‘American Dream’, there are always a few things that motivate them to push on with the grinding walk to the end of the rainbow. Typically, it is a suburban home crammed with goodies and possessions, manicured lawns around that home in which children and puppies scamper around giggly-goggle, and a gleaming SUV parked with élan on the stone-spangled driveway. But two weeks back, nails were driven into the coffins into which such dreams have been subjugated. This holds true not just for those pining to live in the US, but for full-blown Americans too.

Let’s face it. It isn’t just the rest of the world that’s running thin on calculator key-pads and continued opulence. US citizens are facing tough times too. Rising daily expenses are getting tough to manage, so much so that they are throwing up an obvious question. How long will President Donald Trump’s rhetoric – “the US will also feel the pain for a while” – quell public dissent? The impact of the reciprocal tariffs unleashed by the US is hitting home. Quietly, the rumbling is getting amped up to a crescendo.

Says 58-year-old Floridan Catherine Foster: “I am close to retirement, but I don’t know if can afford to. My 401K isn’t doing great. Social Security is on the line. These tariffs will not help America’s global standing. Trump is not a King. Congress and Senate are letting us down by not pushing back [on tariffs].”

Robin Sloan from Maryland is barely managing to stay afloat. “I am holding on, but runaway expenses are affecting my family. I am also worried other nations will hate us. I have a son who has a family and he is struggling too. We are giving up on a lot, but we can’t give up food. We have to eat.”

The Core of the Fear

If we study tariff-impacted expenses faced by the average American living in the US now, it makes for dismal reading. For instance, Ford Motor, America’s pride and joy and a home-grown company, imports 30 per cent of components for each vehicle it makes in the US. All variants need these parts to become working automobiles that can line up in showrooms and take to the road. With higher tariffs on auto components, each Ford vehicle will cost at least 10 per cent more. The computation of the price hike is complex too, say analysts. “Each vehicle comprises of hundreds of parts, imported from many nations. Checking source-nation tariffs and permuting parts’ costs is a nightmare.” S&P analysts also predict: “Auto firms will conserve inventory and replenish ‘tariffed’ stock slowly to protect profitability, leading to production disruptions.” That will further increase costs.

This is one worrisome Ford story. Here’s another, one that scares those who may be impacted. Ontario chief Doug Ford has warned that he will impose a 25-per cent surcharge on electricity exports to three US states, or “turn off power altogether”. After this ‘warning’, the US tempered its tariff stand on Canada and Mexico to some extent. But Doug’s threat remains, writ in stone and Canadian pride.

Beyond expensive cars and yes-no electricity, look at America’s darling non-alcoholic beverage, coffee. The US imports 99 per cent of the coffee it consumes from Brazil and Colombia. Unless coffee magically begins growing everywhere within the US tomorrow or next week, Americans will pay 30-40 per cent more for every single bean that’s brewed. Everyone’s favourite cup of Joe is facing a trade boil. “It will be a challenge for the coffee supply chain and end-users,” says Tomas Araujo, broker at StoneX. “The tariff on ‘coffee-nations’ is around $2,500 more per ton. The price of robusta (coffee type) futures has already jumped to $5,390 per ton.”

New Tariff Equations

Technology and device-makers aren’t smiling either, some for fortuitous reasons. Apple, for one, finds itself in the cross-hairs only because it warmed up to India’s Production-Linked Incentive (PLI) scheme. Offered sops by India, Apple set up facilities in Tamil Nadu and Karnataka through a contract with Foxconn and Tata Electronics. Thanks to this agreement and its new assembly line, customers in the US will now pay more for every iPhone. Sourced from India to the US, iPhones will be ‘imports’ and taxed an additional 26 per cent. Sourced from China, they will cost 34 per cent more. Or it could be 144 per cent more, depending on trade mood swings on any particular morning.

While on US customers and India-based products and services, there’s another twist. India’s IT services are a major economic driver, with $205.2 billion in exports in FY24. A shakeup or tariff crackdown here cannot be avoided or outrun, notwithstanding historical US-India collaboration and the increasing demand for Artificial Intelligence (AI), cybersecurity and enterprise tech solutions.

In the changed tariff scheme of things, global industry units that are dependent on IT backbones face a Hobson’s Choice. That includes US firms. They can stick to the current set-up and spend more, which will force them to absorb, optimise or automate more. Or they can slash IT spends and expose their operation to hacks, loopholes and glitches. Not an easy choice. In fact, there’s no choice.

No Drowning Sorrows

No part of the world that loves its tequila shots or scotch on the rocks can afford to upset Mexicans or Scots. Unfortunately for Americans, both nations are peeved with the new tariffs; and that is making each sip of fiery transparent and potent amber cost more. Italian Campari, Guinness stout and Diageo whiskeys are suddenly costing a few dollars more too.

Analysts at UBS say spirits-makers have to increase prices by 5-10 per cent to cover the tariff impact, or absorb higher costs and take a hit in profits. Sales of exotic wines and cognac have already fallen in the US, as have that of Mexican tequila. “There will be winners and losers; it just can’t be helped,” says Tammy Curtis at US spirits distribution behemoth RNDC.

What about Indians in the US and Indianized Americans who love Dal Makhani, Butter Chicken and Khichdi? After all, these are cooked and packaged by Indian firms, and then shipped to mom-and-pop stores in New York, Washington, Alabama, Alaska and everywhere else. The bottomline is each bite offering ‘a taste of India’ will now cost more. Other cuisines have joined this list too.

A whole lot else is getting more expensive too – jewellery, cigars, carpets, blankets and shawls, supercars (America makes none that merit mention), toys, stationery items, paint and hardware, tickets for travel by air or rail, stay in hotels, and on and on.

Pointy Index Finger

The levelling part in this story is the index finger in the English saying – “Point a finger at someone and three fingers point at your own self.” President Trump has made it clear he is ready for those three fingers pointing his way. The question is what about the rest of the US?

It would be good for Donald Trump if Americans were backing him as one, but they aren’t. Therein lies the nub. To be fair, the US has valid reasons to revisit tariffs and create a trade structure suited to its own deficits and economic future. But power carries responsibilities. As history has taught the world, power needs to be nurtured carefully, for it has a nasty habit of pulling off a sudden vanishing act.

The author can be reached on narayanrajeev2006@gmail.com. Views expressed are personal