MAGA effect outside the US: How different countries have reacted

INDIA: reversal of trade barriers

Through much of its time in office, the NDA government has increased protectionism by erecting higher tariff and non-tariff barriers, including a raft of quality control orders.

Tariffs have been raised multiple times since 2016, covering more than 500 major item categories, marking a “calibrated departure” from the policy of reducing import duty followed by governments over the previous two decades.

The government held the line despite external rebuke and internal lobbying to reduce tariffs. NITI Aayog CEO BVR Subrahmanyam and Finance Commission chair Arvind Panagariya were among those who pushed for tariff cuts for India’s own good.

Now, after having repeatedly denied that the duty increases were “protectionist”, and insisted that India’s stance only mirrored the broader global trend, the Ministry of Commerce is in rethink mode. The trigger is Trump’s pursuit of trade parity and tariff reciprocity.

The Union Budget cut basic customs duty on more than two dozen items. Average customs duty has been reduced to 10.66% from 11.66%. Duty cuts on items such as bourbon, high-end cars, and motorcycles are intended primarily for Washington. Further reductions are on the cards as Trump has announced reciprocal tariffs on all countries from April 2.

India’s tariff cuts signal a belated effort by the government to shed India’s image of a high-tariff economy. However, they come when most other countries are erecting tariff barriers of their own to counter Trump’s trade war.

CHINA: belated consumption push

Last Sunday, Beijing announced its most comprehensive package of policies to boost consumer spending in more than four decades.

The trigger for the consumption action plan is clearly pressure to lift domestic consumption to mitigate the impact of the intensifying trade war with the US, which is denting China’s export sector.

From raising workers’ incomes to improving the domestic consumption environment, the policy covers a range of issues that will have to be addressed if China is to shift its economy to a consumption-driven growth model from an export-driven model.

The 30-point plan for the first time draws a clear link between flagging consumption and problems such as the lingering property crisis, or seemingly peripheral issues such as workers’ annual leave and access to childcare, etc. All these steps have been cited as important as the Chinese government attempts to meet its economic growth target of “about 5 per cent”.

The plan aims to “make people more confident to spend and more stable in their expectations”, Li Chunlin, vice-chairman of National Development and Reform Commission, a government agency overseeing economic planning, reform and development, has said. In his annual speech to China’s legislature on March 5, Premier Li Qiang used the word ‘consumption’ 32 times.

Expectations of the plan had lifted China’s stocks by over 2% on Friday. UBS expects the Chinese government to step up additional policy stimulus throughout 2025 to offset the impact of external shocks, especially American tariffs, on domestic imports. Analysts at Citigroup have upgraded China to overweight while downgrading US equities to neutral from overweight.

EUROPE: Towards re-arming, spending

Europe’s leaders are scrambling to beef up security as Trump’s America threatens to back out from the implicit defence guarantee it has extended to Europe since World War II.

Germany has shrugged off its aversion to debt, with lawmakers reaching an agreement to exempt some defence spending from tough rules (called debt brake), that prohibit running up debts. This has come alongside a proposed move to set up a 500-billion-euro investment fund, financed by borrowing, for Germany’s crumbling infrastructure over the next decade or so.

European Commission President Ursula von der Leyen has called the proposed increase in European defence spending a “watershed moment”.

However, while higher spending could have a positive impact on growth, analysts have said it is not going to show in the short term – and that the boost to GDP will be unremarkable in the coming years. Also, big Eurozone economies such as France, Italy, and Belgium are struggling to bring deficits down to 3% of GDP, constraining their spending power.

But any boost to growth will be welcome in a continent that is struggling to boost output. A revival in Germany, the biggest economy in the Eurozone, could signal a turnaround.

There is also talk of Canada, which Trump wants to incorporate in the US as the 51st state, pivoting towards Europe — with the possibility that Ottawa may choose to become the 28th member of the EU.

A survey carried out in late February by the Ottawa-based polling and market research company Abacus Data reported that 44% of Canadians are open to their country joining the EU, with only 34% opposing. A broader question on general support for joining the 27-nation bloc received 46% approval.

Increased trade between Canada and the Eurozone could be a net positive for both.

The US: not so great again

Higher tariffs and a trade war will almost certainly lead to higher inflation in the US. This, combined with runaway deficits and a possible dilution of institutional autonomy could lead to foreigners beginning to rethink whether they should continue to lend unlimited amounts of money to the US Treasury, analysts say. That could undermine America’s big advantage — of having the global reserve currency and the ability to live beyond its means.

Such a shift could mark a possible watershed moment of the scale, perhaps, of the decision in early 2022 to freeze Russian foreign assets, which forced central banks around the world, including RBI, to buy physical gold rather than derivatives or exchange-traded funds that track the price of gold.

The US Federal Reserve’s decision to continue its rate-cut cycle depended strongly on the outcome of the presidential election — experts believe that the full scale of the cycle may now be at risk. While Trump’s promised tax cuts and tariff barriers could end up stimulating the US economy in the short term, they could eventually stoke inflation — and likely force the Fed to end its rate-cutting cycle sooner. That could impact growth in the US, and have implications for the monetary easing plans of other countries, including India.

It was Trump, in his first term, who replaced the North American Free Trade Agreement (NAFTA) among the US, Canada, and Mexico with the United States-Mexico-Canada Agreement (USMCA). His imposition of tariffs on Canada and Mexico now violates the deal that he struck himself — and spotlights his disregard for negotiated trade agreements.

Indeed, the question is being asked in many capitals, including New Delhi: why should any country get into a tariff deal with the US when the President does not adhere to an agreement he signed himself?

With China and the EU targeting American farm goods with higher tariffs in a surgical fashion, the coming months could be discomforting for Washington. A dip in consumer confidence and rising inflation have already started to bite.