2024 US election and its ripple effects on global trade
This article is authored by Gunwant Singh, scholar, international relations and security studies, Jawaharlal Nehru University, New Delhi.
The 2024 United States (US) presidential election has ushered in a new administration poised to influence both domestic and international economic landscapes. It culminated in a historic victory for Donald Trump, marking his return to the White House for a non-consecutive second term—a feat last achieved by Grover Cleveland in 1892. Trump's campaign was characterised by a firm commitment to stringent trade policies, particularly targeting China, with promises to impose substantial tariffs on Chinese imports. This approach reflects a continuation and intensification of the trade tensions that have defined US-China economic relations in recent years. Regardless of whether Donald Trump or Kamala Harris emerged victorious, the prevailing bipartisan consensus on adopting a stringent stance toward Chinese trade practices is anticipated to have far-reaching implications. This policy direction is expected to affect not only the economies of the US and China but also exert significant influence on global markets.
Historically, US administrations have expressed concerns over China's trade policies, citing issues such as intellectual property theft, state subsidies, and trade imbalances. The Trump administration notably escalated these concerns into a full-scale trade war, implementing tariffs on a wide array of Chinese goods. This approach aimed to rectify perceived inequities but resulted in reciprocal tariffs from China, leading to increased costs for consumers and disruptions in global supply chains. The Biden administration, while differing in rhetoric, maintained a firm position on China, emphasising the need for fair trade practices and national security considerations.
The US-China trade relationship has been fraught with complexities, significantly impacting global economic dynamics. In 2023, the US imported approximately $450 billion worth of goods from China, while exporting around $150 billion to the Chinese market. This substantial trade deficit has been a focal point of US economic policy, with successive administrations seeking to address perceived imbalances. Trump's proposed tariffs reportedly as high as 60% on Chinese goods are intended to reduce this deficit and bolster domestic manufacturing. However, such measures carry the risk of escalating trade tensions, potentially leading to retaliatory actions from China and further disruptions in global supply chains.
The imposition of high tariffs on Chinese products is anticipated to have multifaceted repercussions. For American firms, increased import costs could lead to higher production expenses, which may be passed on to consumers in the form of elevated prices. Industries heavily reliant on Chinese components, such as electronics and automotive manufacturing, are particularly vulnerable. Conversely, Chinese exporters may experience reduced demand from the US market, compelling them to seek alternative markets or adjust their pricing strategies to remain competitive. The interconnectedness of global supply chains means that these disruptions are unlikely to be confined to the US and China alone.
The global economy is poised to feel the ripple effects of heightened US-China trade tensions. Countries integrated into the supply chains of either nation may face indirect consequences, including decreased demand for intermediate goods and potential shifts in trade flows. For instance, nations supplying raw materials or components to Chinese manufacturers could see a decline in orders, affecting their export revenues. Emerging economies that rely on global trade for growth may be especially vulnerable, as disruptions in major economies like the US
and China can weaken demand for exports and investment. Additionally, the uncertainty engendered by trade disputes may dampen global investment, as firms adopt a cautious stance in response to potential market volatility. Prolonged uncertainty could also lead to a slowdown in innovation and productivity, as companies divert resources to address short-term challenges rather than pursuing long-term growth strategies.
In the context of the Indian economy, the ramifications of the US-China trade policies are particularly pertinent. India, as a significant player in the global market, could encounter both challenges and opportunities arising from these developments. On one hand, Indian exporters might benefit from the diversion of US import demand away from China, potentially increasing their market share in sectors such as textiles, pharmaceuticals, and information technology services. For instance, the US import value of textiles from India grew by approximately 20% in 2023, driven partly by efforts to diversify supply chains away from China. On the other hand, disruptions in global supply chains could adversely affect Indian industries reliant on Chinese imports for raw materials and components, leading to increased production costs and potential supply shortages. Furthermore, sectors such as electronics manufacturing, which are heavily reliant on Chinese imports for components, may find it challenging to adjust quickly to these shifts, impacting domestic production and export capacities. The broader implications for India extend beyond trade dynamics. The global economic slowdown that may result from intensifying US-China trade tensions could influence India's export performance and foreign investment inflows. India has consistently sought to position itself as a favorable investment destination, promoting initiatives such as "Make in India" to attract global firms. However, heightened uncertainty and a slowdown in global trade could temper investor enthusiasm.
The International Monetary Fund (IMF) has cautioned that escalating trade protectionism could impede global economic growth. Projections suggest that widespread tariff increases may reduce global output by up to 1.3% by 2026. Such a contraction would have far-reaching implications, potentially exacerbating economic disparities and undermining efforts toward sustainable development. For developing economies like India, which are striving to enhance growth and reduce poverty, the adverse effects of a global economic slowdown could be particularly pronounced. The IMF’s warning highlights the interconnected nature of modern economies, where policy decisions by major powers like the US and China have cascading effects across the globe.
In conclusion, the steadfast US policy of adopting a tough stance against Chinese trade practices, irrespective of the presidential administration, is poised to have significant economic implications. While the intention is to address trade imbalances and protect domestic industries, the potential for unintended consequences is substantial. Both US and Chinese firms may face challenges, and the ripple effects are likely to influence the global economy. As such, it is imperative for policymakers to carefully consider the broader economic impacts of trade policies and strive for solutions that promote fair trade while minimising global economic disruption.
This article is authored by Gunwant Singh, scholar, international relations and security studies, Jawaharlal Nehru University, New Delhi.