Threats to global growth moderate Narendra Modi’s election prospects

In January, this column highlighted Prime Minister Narendra Modi’s streak of lucky breaks ( ‘‘Modi is a Very Lucky Man’). These included a widely forecast surge in global GDP growth in 2018, spurring rapid Indian growth in his final 18 months in office, and boosting his prospects in the 2019 general election.

Recent events cast doubt on the strength of the global growth surge. This, in turn, casts doubts on whether India will surge forward on a global wave, aiding BJP electorally.

The biggest threat to global growth is the aggressive trade bullying by US President Donald Trump, aimed especially at China. First, Trump raised US import duties on washing machines and solar panels, imported mainly from China. Next came import duties on steel and aluminium. Trump was willing to exempt countries that followed his idea of fair trade practices, and this might cover Europe and Japan. It will not cover China.

Trading Tariffs
Then, on April 2, China retaliated mildly with import duties on just $3 billion worth of US exports, including pork, nuts and wine. This mild approach was clearly aimed at saving face while avoiding an all-out trade war that would be a loss-loss for both sides. But Trump angrily hit back the very next day by proposing higher tariffs on a new list of 1,300 Chinese exports worth $50 billion.

Feathers ruffled, China, within 24 hours, threatened a tit-for-tat levy of 25% on $50 billion worth of US goods such as soybeans, aircraft, large cars and chemicals. Soybeans are an extremely important export item for the US mid-West, which usually votes heavily Republican. Hitting the income of US soybean farmers could hit Trump politically in the mid-West in the crucial Congressional elections in November.

Far from cooling down, Trump on April 5, threatened tariffs on another $100 billion of Chinese exports. He said he had authorised the US trade representative to examine which Chinese exports should be targeted. Undeterred, China declared that it, too, was looking into appropriate counter-measures.