Regime of disruption?

Donald Trump, a Republican from City, recaptured the White House on Wednesday (November 5, 2024) by securing more than the 270 Electoral College votes needed to win the presidency. The swearing-in as the 47th president of the United States is scheduled to take place on Monday, January 20, 2025, in Washington DC. The event will be Trump's second inauguration to the presidency. At 78 years, 220 days of age on Inauguration Day, Trump will be the oldest person to assume the presidency and he will be the first former president to return to office in more than 130 years. Donald Trump's tenure as the 45th president of the United States began on January 20, 2017, and ended on January 20, 2021.

Political commentators contend that in 2016, the Left attributed his triumph to racism and the Electoral College. But this time, the immigrant voters may have won America’s presidential election for the nativist candidate.

Trump’s team

Trump has picked up US Congressman Mike Waltz as national security advisor. Waltz, an outspoken critic of China, will help craft the incoming administration’s foreign policy. Trump announced his pick on Tuesday, hailing Waltz as a “strong champion of my America First Foreign Policy agenda, [who] will be a tremendous champion of our pursuit of Peace through Strength.” Waltz has been a member of the House China Task Force, which develops measures against “threats” posed by China. He also introduced bills aimed at countering Beijing’s influence on the world stage and has accused the country of “trying to usurp us as a global leader”. “China’s aggressive activity throughout the Indo-Pacific necessitates US action,” the congressman said last year.

In a significant move, Trump has picked vaccine sceptic and former independent presidential candidate Robert F Kennedy Jr as his health secretary. According to BBC, Trump told supporters at his election night victory party that Kennedy wanted to "help make America healthy again”. “For too long, Americans have been crushed by the industrial food complex and drug companies who have engaged in deception, misinformation, and disinformation when it comes to Public Health", Trump said in his statement on Thursday. Kennedy is also known for his criticism of childhood vaccines, claiming in an interview last year: "I do believe that autism comes from vaccines."

Earlier, Donald Trump selected Tesla and SpaceX CEO Elon Musk, alongside entrepreneur Vivek Ramaswamy, to lead the newly established “Department of Government Efficiency” (D.O.G.E.) which aims to streamline federal operations, cut down on wasteful spending, and drastically reduce government bureaucracy. Trump’s transition team confirmed the appointments emphasising the need for a fresh, entrepreneurial approach to running the government. Trump compared the department’s mission to a “Manhattan Project” for government reform to reduce the federal government’s USD 6.5 trillion in annual spending by slashing outdated regulations and promoting private-sector efficiency in federal operations. Musk and Ramaswamy’s work is set on an ambitious timeline, with goals to complete the overhaul by July 4, 2026 — coinciding with America’s 250th anniversary of the Declaration of Independence.

Apprehensions

Trump’s ascent to the highest office in the US while facing dozens of criminal charges has left the country in uncharted territory. Donald Trump will be the first president to take office while several criminal cases against him are pending. Donald Trump was convicted on 34 felony counts of falsifying business records in May 2024 in New York. Special counsel Jack Smith filed criminal charges against Trump last year over his efforts to overturn his 2020 election loss to Joe Biden. However, as president-elect, Trump's criminal problems from the case now "go away", report BBC.

Many analysts fear that Donald Trump’s election as president of the United States and his ‘America first’ policy will push the global economy into a state of uncertainty. Donald Trump’s politics is so elastic that it is impossible to be certain what he means when he promises, as he did on election night, when he wished to “govern by a simple motto: promises made, promises kept”. The question is will he judge himself a failure if he does not end the war in Ukraine before he takes office, asks the Economist.

This piece will discuss, in brief, the possible impact of Trump’s second term as the US president on the global economy in general, and on the Russia-Ukraine war and Middle-east conflict in particular.

Global economy

According to Reuters, Donald Trump's victory will have economic consequences for the rest of the world, which are likely to be deep and quite immediate. It is dreaded that if Trump enacts just a fraction of his pledges—from higher trade tariffs to deregulation, more oil drilling and more demands on America's NATO partners—the strain on government finances, inflation, economic growth and interest rates will be felt in every corner of the world.

Experts fear that Europe will be under pressure to buy more US weapons, a trade dispute, and possibly a trade war. “Trump has been very clear that Europeans need to ramp up their defence spending even further. He wants a three per cent of GDP pledge and we can expect him to push this hard,” said Anna Wieslander, director for Northern Europe at the Atlantic Council. Europe will also be up against opposition to autonomy from Trump, she says. According to Wieslander, Trump does not want the European defence market to become autonomous, which is a prerequisite for European strategic autonomy. During the previous Trump administration he pushed Europeans to buy more American defence material. Neither has he expressed any wish for the Europeans to develop their own nuclear deterrence, another necessary condition for European strategic autonomy. Trump’s promise to slap a 10 per cent tariff on all imports, including those from Europe, and a 60 per cent tariff on all Chinese imports, will be a greater concern, analysts believe.

The global economy will face a serious blow if Trump repeats protectionist policies of his first presidential term. Citing various studies Aljazeera reports that during his campaign, Trump declared “tariff” his favourite word and the “most beautiful word in the dictionary”, and cited the protectionist policies of former President William McKinley, who governed from 1897 to 1901, as an inspiration. While Trump slapped tariffs on USD 380bn of US imports during his first trade war with China, his proposals this time to impose tariffs of at least 60 per cent on Chinese imports and tariffs of 10 to 20 per cent on all other foreign goods would cover goods worth 10 times that amount. This would raise duties to levels not seen since the Great Depression. As per the Swiss bank UBS’ estimate, a 60 per cent tariff on Chinese goods and a 10 per cent universal tariff would reduce global economic growth by one percentage point in 2026. The London School of Economics and Political Science has predicted a 0.68 per cent reduction in China’s gross domestic product (GDP) and a 0.11 per cent reduction in the European Union’s GDP. India, Indonesia and Brazil, meanwhile, would see GDP losses of 0.03 per cent, 0.06 per cent and 0.07 per cent, respectively.

The central bankers the world over fear that levies on US imports, tax cuts and deportations of illegal immigrants that could shrink the pool of cheap labour will pose two main risks: Slower economic expansion around the world and faster inflation at home that would make the Federal Reserve less willing to lower interest rates, resulting in a stronger dollar and reduced scope for developing nations to ease their own monetary conditions.

The most serious concern among environmentalists the world over is Trump’s views on the climate change issue. It is feared that with Donald Trump’s election victory, the US might exit the Paris Accord, the international climate agreement signed nearly a decade ago, and head toward an energy policy inspired by Trump’s campaign mantra “drill, baby, drill” and "Frack, frack, frack!" It may be recalled that earlier, the US did not ratify the Kyoto Protocol. His transition team is already working on a plan to pull the US out of the Paris Agreement, reports the New York Times.

The Guardian reports that Trump’s promise to repeal major climate policies passed during Joe Biden’s presidency threatens to push USD 80bn of investment to other countries and cost the US up to USD 50bn in lost exports, surrendering ground to China and other emerging powers in the race to build electric cars, batteries, solar and wind energy for the world. Under Biden, the US legislated the Chips Act, the Bipartisan Infrastructure Law and the Inflation Reduction Act, all aimed in varying degrees to deal with the climate crisis. Trump has talked of forging “American energy dominance” that is based entirely upon fossil fuels, with more oil and gas drilling coupled with a pledge to scrap offshore wind projects and an end to the “lunacy” of electric cars subsidies. The president-elect is expected to lead a wide-ranging dismantling of environmental and climate rules once he returns to the White House, the report says.

Russia-Ukraine war

Bryan Lanza, a senior adviser to Trump's 2024 campaign, revealed that the incoming administration's focus will be on achieving peace in Ukraine, rather than supporting the country’s attempt to regain territory occupied by Russia. Trump’s priority remains ending the war, as he has consistently argued that continued US military aid to Ukraine is a drain on American resources. This shift in policy could have major implications for Ukraine’s military strategy and on-going conflict with Russia. Trump is expected to propose the deployment of European soldiers to establish an 800-mile buffer zone between the Russian and Ukrainian forces. "We are not sending American men and women to uphold peace in Ukraine. And we are not paying for it. Get the Poles, Germans, British and French to do it," a member of Trump's team said, reports Mint, quoting the Telegraph. Throughout his campaign for the White House, Trump bashed Biden’s handling of Ukraine, warning that it made World War III more likely and that Kyiv fleeced the US by obtaining weapons worth billions of dollars free of charge.

It may be mentioned that On January 1, 2025, a major contract governing the transit of Russian gas through Ukraine will end, with significant implications for remaining Russian gas exports to some European Union countries. The end of the transit contract will mark an important shift because gas via Ukraine governed by the contract currently accounts for half of Russia’s remaining pipeline gas exports to the EU and a third of total Russian gas exports, including LNG. The impact will be felt especially in Austria, Hungary and Slovakia, for which the Ukrainian transit route met 65 per cent of gas demand in 2023. Overall, the share of Ukrainian transit in EU gas imports has dropped from 11 per cent in 2021 to about 5 per cent.

The end of war may significantly raise the demand for Russian gas in other energy-starved EU nations. India may be a looser as despite sanctions against Moscow, Russia emerged the biggest oil supplier to India and 5th largest trade partner. It accounted for more than one-third of India’s total oil import, viz, 35.7 per cent, against merely 1.9 per cent in 2021-2022. This left India with a major success to dismantle its over-dependence on Arab oil. In 2023-24, India’s oil dependency on Arab slashed to 44.5 per cent from 59.7 per cent in 2021-22.

Middle-east crisis

Palestinians in war with Israel for more than a year, expressed fear at Donald Trump's return to the White House, while the leaders of the militant group Hamas and the Palestinian Authority urged him to act for peace. In the Israeli-occupied West Bank, Palestinian President Mahmoud Abbas, a rival of Hamas, congratulated Trump on his election as US president. He said he would cooperate with the new administration to reach regional peace, reports Reuters. However, any major progress on a cease-fire will probably have to wait until after January’s inauguration, analysts said. Analysts believe that it will be ‘slaughter as usual’ for Israel in Gaza and Lebanon under the incoming Trump administration.

The war in Gaza and its fallout have stalled plans for the India-Middle East-Europe Economic Corridor, or IMEC. If the war continues, then India’s dream of using Haifa port in Israel (owned by the Adani group) to link the EU and India via the Gulf can end. With IMEC, the US and the EU aimed to draw India closer and counter the Chinese influence.

Observations

Impact of Trump’s win on India will primarily depend on how the China and USA trade war shapes up in future. Reacting to Trump’s victory, Chinese foreign ministry spokeswoman Mao Ning told Global Times, a Chinese state tabloid: "We will continue to approach and handle China-US relations based on the principles of mutual respect, peaceful coexistence, and win-win cooperation." However, a steep tariff of 60 per cent on Chinese goods may force China to devalue its currency and aggressively look for an alternative market in India and other countries of the global south for its products. A depreciating Yuan will lower the cost of Chinese goods, potentially leading to more imports and further widening India's biggest trade deficit.

Indian stock market has been adversely affected during the last one week. Billions of foreign investments have migrated from the Indian stock market and Indian currency has depreciated to over INR 85.4 against USD 1. Analysts fear that INR will depreciate upto 10 per cent in near future. It is also reported that India’s central bank is ready to let the rupee weaken in tandem with the Chinese Yuan after Donald Trump’s election win spurred fears of higher US tariffs.

A research report of the State Bank of India (SBI) has claimed that Trump's victory may introduce a mix of challenges and opportunities for India. While the potential for increased tariffs, H-1B restrictions, and a strong dollar could bring short-term volatility, it also presents India with long-term incentives to expand its manufacturing, diversify export markets, and enhance economic self-reliance," it added.

The major fear is from the resurgent American firms. It is feared that Elon Musk's Starlink may win big in India as the Indian government opts for spectrum allocation in satellite broadband. In a significant policy shift, the Indian government has opted to allocate spectrum for satellite broadband services instead of auctioning it. This decision aligns with international standards and benefits global players like Elon Musk’s Starlink. This decision has raised concerns among India’s telecom giants, Reliance Jio and Bharti Airtel, led by Mukesh Ambani and Sunil Mittal, respectively.

In a likely trade war between China and the USA, it can be surely said that difficult days are ahead for the Indian crony capitalists and dot.compradors!

Views expressed are personal