By T N Ashok
NEW YORK: Wednesday at midnight, China faces 104% tariffs, perhaps the steepest in Sino-US trade in history, as President Trump decided to heave another 50% tariffs over the 54% tariffs announced earlier to total 104% in retaliation for China’s imposition of 34% tariffs on US made goods.
The tariffs go into effect at midnight on Wednesday in over 60 countries even as US President Donald Trump said many countries are waiting to strike deals. The US expects a call from China to negotiate, but so far there has been deathly silence.
White House Press Secretary Karoline Leavitt reaffirmed Tuesday President Trump’s plan to impose 104% tariffs on China starting Wednesday, saying “There will be 104% tariffs going into effect on China tonight at midnight, but the president believes that [China’s President} Xi and China want to make a deal, they just don’t know how to get that started.”
Leavitt did not specify steps that may be needed for all the ‘reciprocal tariffs’ to be withdrawn, and Trump has been pretty tight-lipped about what countries can do. In some cases, he’s said it’s not enough for countries to bring their tariffs down to zero because it doesn’t address the trade deficit on goods bought by each country. They range from a couple billion to hundreds of billions of dollars. As of publication, no deals have been made. Earlier in the week, he said there would be no pause or extension for negotiations. China has a trade surplus of $300 billion with US, EU block has a trade surplus of $200 billion with the US and India has a trade surplus of over $50 billion.
The US government has a debt accumulated over years to the tune $9.2 trillion of which $6.5 trillion come up for redemption by august or September this year. Trump has therefore addressed this issue on two fronts 1) geopolitically 2) on the economic front. Geopolitically he has extended an olive branch to Russia, Saudi Arabia and going soft on Middle East oil rich Arab countries.
Trump hopes to raise $700 billion through the tariffs and DOGE administrator Elon Musk has already mopped up in savings around $800 billion through job cuts and layoffs in government positions considered redundant. That makes it $1.5 trillion in the kitty. Though $ 5 trillion are yet to be raised to redeem the debts, what Trump has achieved is he has successfully reduced the burden of debt servicing, that is in terms of payment of interest on the accumulated debt.
That’s a smart move. Treasury Secretary Scott Bessent is said to be behind the master stroke of tariffs though he has publicly admitted that one could not rule out the possibility of America being pushed into a recessionary phase as manufacturing could slow down and cost of imported goods could rise very substantially. A $50 toy from China could now cost upwards of $100.
That’s the scenario — if that’s the market projection, then truly America could be pushed into recession unless local manufacturers pick up the challenge and start manufacturing goods that would cost less than imported goods. Vietnam, Cambodia, and Bangladesh face tariffs of over 45% and India 27%. These countries export garments and eatables and grains such as Rice to America. As garments and groceries become costlier, India would stand to benefit as its condiments and grains such as rice and wheat would be cheaper and garments less costly.
Trump on Tuesday said tariff negotiations with South Korea, which has a free trade agreement with the U.S., have led to “the confines and probability of a great DEAL for both countries.” Trump posted that a wide-ranging economic deal may be in the works with South Korea following a call with the country’s acting president. However, no specific details of a possible deal have been released. So far, leaders of Japan, Israel, and Vietnam have publicly negotiated with Trump. Trump said the U.S. is waiting for China to call, but that “It will happen!” In the game of chicken, China thinks it can win too. On Tuesday, Chinese officials vowed to “fight to the end” in the face of Trump’s tariffs.
Both countries had approximately 20% tariffs on one another as of last month. Trump announced a 34% retaliatory tariff last week for what he said were unfair trade practices, taking up the U.S. tariff to 54%. China responded by raising their tariffs by 34%. Trump then added an additional 50% tariff on top of that, taking the U.S. tariffs on all Chinese goods up to 104%. In 2024, Americans bought nearly $440 billion of goods from China, making it the U.S.’s second-largest source of imports behind Mexico.
Let’s take a look at the numbers: With the new tariffs, if a toy had been $25 wholesale from China, starting Wednesday, that would now cost $51 before it even hits the shelves — retailers would likely pass that cost on to consumers, meaning the toy that used to sell for $40–$50 might now sell for $80–$100 or more.
Not everyone in the White House agrees with Trump’s gamble. Tesla CEO and Trump advisor Elon Musk called the president’s trade adviser Peter Navarro “Peter Retarrdo,” “truly a moron” and “dumber than a sack of bricks” on Tuesday, responding to Navarro’s claim that Tesla is merely a car assembler, not a car manufacturer. Over the weekend, Musk had mocked Navarro’s push for broad tariffs and questioned his credentials, writing, “He ain’t built s—,” which he later deleted. Navarro’s Tesla comments then led to Musk’s latest round of insults.
The White House responded to the public spat saying, “boys will be boys,” but Trump has not directly commented on it. However, he appears to be aligning with Navarro’s trade philosophy over Musk’s. On Monday, Musk posted a video of economist Milton Friedman promoting free trade by explaining the complex supply chain that leads to building a pencil. Other Trump allies like billionaire hedge-fund manager Bill Ackman have called for a 90-day before the tariffs take effect to buy time to negotiate with other countries.
India’s central bank, the RBI, has cut interest rates as growth tends to slow down in Asia’s third largest economy. The Reserve Bank has cut interest rates by 0.25% amid a spate of downgrades to growth following Donald Trump’s tariff announcements.
The Reserve Bank of India (RBI) reduced repo rates from 6.25% to 6%, a second cut since February when rates were brought down after nearly five years. The repo rate is the rate at which commercial states owned banks borrow from the federal reserve. The repo rate is also the level at which the central bank lends to commercial banks, influencing borrowing costs. The RBI also brought down its growth projections for this year from 6.7% to 6.5%. It said India’s gross domestic product (GDP) will grow at 6.5% next year as well.
Crucially, the RBI shifted its monetary policy stance to “accommodative” from “neutral”, which means that the central bank would be more open to cutting rates in the future to stimulate a slowing economy. “Concerns on trade frictions are coming true” and unsettling the global community, RBI governor Sanjay Malhotra said in his speech, adding that headwinds from disruptions to trade would continue to pose challenges for the economy.
Most economists who had previously expected only one more rate cut this year are now predicting more softening as Trump’s tariff war puts growth in the world’s fastest growing major economy at risk. “The magnitude of rate cuts in the cycle now could be as high as 100bps (1%),” ICICI Bank said in a note, a view echoed by many other analysts. Moderating inflation will give the RBI further elbow room to slash borrowing costs, according to several brokerages, as growth momentum further loses steam due to Trump’s global trade war.
HSBC calculates GDP could take a direct hit of as much as half a percent this financial year due to slower export volumes around the world and weaker inflows of foreign funds. The government’s capacity to stimulate the economy to counter the impact of Trump’s tariffs is also limited because “spending and tax revenues have lost steam in recent months”, according to HSBC.
Starting Wednesday, Indian goods being exported to the US will face additional tariffs of up to 27%. Tariffs on India are lower than 104% on China and 46% and 49% respectively on Vietnam and Cambodia. The final impact on India’s trade will depend on “how long the announced tariff structure lasts”, ratings agency Crisil said. “The outcome will also be influenced by how other countries retaliate or negotiate with the US on tariffs.” China has already retaliated by imposing 34% reciprocal tariffs on US imports, while Europe is considering countermeasures.
India on the other hand has assumed a more restrained stance and is working towards concluding a trade deal with the US. India has “agreed on the importance of the early conclusion of the Bilateral Trade Agreement”, Foreign Minister S Jaishankar said on X (formerly Twitter) this week after his meeting with US Secretary of State Marco Rubio. But even with a trade deal in place, India’s economy is unlikely to be immune to a slowdown in other parts of the world with demand for its exports potentially reducing in the event of global growth falling off a cliff.
Wall Street bank JP Morgan has put the chance of a global recession at 60%, while ratings agency Moody’s said the odds had risen from 15% to 35% due to tariffs. At 6.5%, India continues to remain the world’s fastest growing major economy, but its growth has sharply come off the 9.2% high recorded in financial year 2023-24.
US President Donald Trump is ripping up the rulebook on trade that has been in place for more than 50 years, BBC said in a report from New York adding His latest round of sweeping tariffs, which came into force shortly after midnight on Wednesday, hits goods from some of America’s biggest trading partners including China and the European Union with dramatic hikes in import duties. (IPA Service)
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