Tariff wars far from over, Trump likely to reuse trade lever, warns Swaminathan Aiyar

Time of India

10-06-2025

"The London meetings may not clinch it, but you have to see that there was a 90-day pause on April 2nd, that deadline is now not very far off and no big deals have been clinched by Mr
Trump
except with Britain. So, right now they are getting a little uneasy and willing to give way. Because of that in the USA, there is this new thing called taco, standing for Trump always chickens out," says
Swaminathan Aiyar
,
Consulting Editor
, ET Now.
Well, the official word so far is that
US-China trade talks
details were limited on Monday, I mean they are saying that US is willing to remove restrictions on some tech exports in exchange for China easing limits on rare earth shipments, but nothing has really happened. Is it going to be too hopeful or too optimistic to think that everything is going to be eased out on the sidelines of these London meetings?
Swaminathan Aiyar:
The London meetings may not clinch it, but you have to see that there was a 90-day pause on April 2nd, that deadline is now not very far off and no big deals have been clinched by Mr Trump except with Britain. So, right now they are getting a little uneasy and willing to give way. Because of that in the USA, there is this new thing called taco, standing for Trump always chickens out.
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The Chinese stood up, when Trump increased the import by 125%, so did they and ultimately Trump had to back down on that and has backed down on various things. So, on the one hand this means that some kind of deals are definitely more possible. It also means that every country including India we have an incentive not to give way very easily. We have an incentive to say China stood up and it was rewarded. If all of us stand up, then we have this guy who from being a dragon now is beginning to chicken out on various deals, so let us talk tough, let us act tough. So that is the global position right now. For the very fact that the Americans say they are willing to ease the restrictions on high-end chips in return for the rare earths is a sign of chickening out in a big way. Let us see if that actually happens. As I said, we all have an incentive now to act tough because Mr Trump is very keen on reaching deals with the major countries before the 90-day deadline. Let us see what happens. As I said, I would look for last minute developments rather than anything right now despite the talks in London.
Given with everything happening between US and China and within the US economy itself, you also have the matter of the rare earth metals that is looming on everybody's head and not only these two countries. Give us a sense of where India stands amid this storm. Do we stand to benefit from supply chains potentially shifting out of China and towards other EMs? And also, we understand that we do have enablers to manufacture our rare earths, but we are at a very nascent stage. So, what is your take on that as well?
Swaminathan Aiyar:
All across the world major countries have suddenly realised by God I am so dependent on China. It had not occurred to them in the days when globalisation was proceeding a pace, that you suddenly become so dependent on one single source. The United States has a bill of $39 million to promote its own supply chain of rare earths. We have begun, but it will take a long time and frankly we do not have very good domestic prospects. It will be more like trying to diversify our sources from other places. But the fact is that right now our auto industries and smartphone industries are both complaining that the supply chain is becoming very strained.
Stocks of rare earths and permanent magnets are coming down to dangerous levels and if this does not reach some kind of quick conclusion, they may have to reduce production from June.
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India has made it very clear that Sino-Indian relations must not be mixed up with Sino-US relations. So, I mean that is one good thing. On the other hand, it also means while we do not have to worry as much about China hitting us as the US has, it also means we have less leverage to use the USA to get things done for us. So, let us see. China is keeping a very large number of countries on a tight leash to prove how strong position it is in and it knows very well that while all the other countries want to get other sources of supply, it is going to take some time and therefore China is going to have the upper hand in this deal not just in what happens in the next month or so but even in the next year, in the next two years.
So, this is going to be an interesting Chinese lever that it may use again and again. As of now, let us see that 90-day deadline is approaching and let us see whether the USA and China manage to do a deal. Once that happens, there will be a lot of relief the world over and people saying okay things are not as bad as they are. The guy has chickened out once again, let us see.
But things are really turning out to be bad between Elon
Musk
and Donald Trump, at least what their social media handles do suggest and finally that bromance seem to be coming to an end. But help us understand that what do you make out of that because some experts are even highlighting and anticipating that it is possible that both parties come along and once again join and shake hands. But what is your sense on that because for now in the latest commentary we see that Donald Trump calls Starlink a good service, but the tensions between both of them do remain. How do you see the landscape shaping up?
Swaminathan Aiyar:
At this point, Trump is very keen on doing deals within that 90-days, that is why people are accusing him of chickening out. From starting with a very-very tough stance, he has given way again and again. So, I would hope that a number of deals will be concluded within that 90-day deadline, but by no means all. I would also add that there is an incentive for every country like India to drag its feet. I mean, the key question is what will happen after the 90 days? Will Trump once again impose what he called those reciprocal tariffs of different rates from 26% to much-much higher rates all over the world.
Is he going to reimpose them? As of now, that does not seem to be his intention. He keeps saying, I am hoping for deals. If those deals do not happen, are we going to see another phase of Trump saying now I am going to act tough because if you suddenly get reciprocal tariffs coming back after 90 days, then all this optimism that you are seeing in the markets right now, it will disappear like a whiff of smoke and all kinds of dire predictions will come again.
So, we do not know what is going to happen. However, the longer-term prediction, I would say, please let nobody think that the 90 days is going to be the end. I think Mr Trump is going to continue to use the tariff lever for four full years. It is not over in 90 days. I do not think this is the end of the tariff thing. He is a believer in tariffs. He really thinks that tariffs are the solution and not a problem. And while in the short term he may say okay, I will chicken out here, I will chicken out there. The chicken will come back again and again and again. I do not think you are going to have any kind of safety or security in the next four years. So, in the long run, watch out.
But what about the big beautiful breakup now between Musk and Trump? What are the implications of that?
Swaminathan Aiyar:
Well, I have to say that Mr Musk has been revealed as a greedy money grabbing guy. I mean, the thing he mainly disagrees with is among other things is that his own pocket is going to be burnt by some of the clauses in this bill. Some of the huge amount of subsidies that he has been getting, that some of the tax breaks that buyers of electric vehicles have been getting, if all that is taken away, it will hurt him very substantially.
And people really think this is the big thing that is going behind. In any case, I do not think Mr Trump is famous for having permanent allies. I mean, even in the case of Iran, he turned around and said, we can do a deal with them and when people were astonished, he says we have no permanent enemies. In the case of Musk, he can also say we have no permanent friends.
As long as, Mr Musk was willing to spend millions of dollars on helping Trump to get elected or as long as he was willing to ride on some of the slashing of expenditure, that part of the bandwagon, Trump was with him. The moment he got out of line, the moment that he ceased to be as important as he thought he was, he went into a sulk and Mr Musk is welcome to go into but Mr Trump is the guy who has the Trump cards. So, this was going to happen at some point of time and I would say that nobody should ever believe that Trump has permanent friends. If you look at his first term itself, many-many of the people he appointed to top posts were sacked and he has sacked people all over the place. In the TV programme called The Apprentice, his favourite line was you are fired. So, Mr Musk should not be surprised.
What about India? We have got a great mix going on here. You have got lower inflation, now lower EMIs after the big bazooka from
RBI
, lower taxes back in the budget, and now good monsoons as well. You think it is a good mix for India markets to stay up?
Swaminathan Aiyar:
People are talking about the big bazooka and the big cut. To me this is a preparation for a possible recession. So, they are doing a counter cyclical thing now itself. Just a month ago I would say there were people rating chances of a recession extremely high.
Now those chances may be a little less. But just wait for the end of the 90-day pause. Let us see what happens about this reciprocal tariff. Let us see how many trade deals are done because if it does not get done fairly quickly, we will indeed slip into a recession.
From that point of view, Mr Malhotra can say, well, look I am taking advance action, I can see the possibility of a recession, so this is counter cyclical policy being taken at a very appropriate time, that I think will be his defence. There are some people accusing him of being too gung-ho.
The Financial Times in London has said, hey, just take it easy, why are you cutting so badly after all you still have these problems and things are there. I agree we have our problems, but one of those problems is going to be a possible coming recession and as a counter cyclical thing against that recession, I think the RBI governor's aggression can be justified at this particular point. It is a bold move, but boldness might pay.