'The end of US supremacy': What Porinju Veliyath says as trade war intensifies

Porinju Veliyath of Equity Intelligence India believes the end of US Supremacy is on the horizon. He, in a post on social media platform X, tagged a previous post and suggested that the global economies will keep trading, with or without the US. 

In a post on April 2, the day Trump administration imposed at least 10 per cent import duty on dozens of countries, Veliyath urged India to give up protectionism and unleash free market competition and ease of doing business, as discussed in latest economic survey. 

"Indian young entrepreneurs are hungry to grow. Give them freedom. No more protecting some entrenched players. Trust the entrepreneurial zeal of Indians and not planning and surveying abilities of bureaucrats. Seize this moment with reformist policies," he suggested earlier.

He cited balance of payment crisis in 1991, when India's responded with liberalisation, as an example.

The Trump tariffs has threatened the global economic growth. If such tariffs continue longer, Elara Securities sees a certain end to ‘US exceptionalism’.

Analysts highlighted the Smoot-Hawley Act of 1930, a US law that raised tariffs on 20,000 imported goods to protect American farmers and industries during the Great Depression. It aimed to make foreign products more expensive to encourage domestic consumption in US. It was signed into law on June 17, 1930, by President Herbert Hoover. However, instead of reviving the US economy, it triggered a global trade war. 

"Many countries retaliated by imposing their own tariffs on American exports, leading to a sharp decline in international trade. Major economies like Canada, Britain, France, and Germany imposed counter-tariffs, worsening the economic downturn worldwide. The act may have contributed to the Great Depression, as global trade collapsed by over 60% between 1929 and 1934," DSP Mutual Fund noted in a February note. 

"Trade wars, like those sparked by Smoot-Hawley, are dangerous because they reduce economic efficiency, disrupt global supply chains, and increase consumer prices. They often escalate, causing economic slowdowns and worsening diplomatic relations, making economic recovery harder," it noted.

In a recent note, Nuvama Institutional Equities noted that a dollar-centric fiat money system was not age-proof. "For several decades, US’s ‘exorbitant privilege’ of printing the reserve currency was obscuring its deepening vacuity—de-industrialisation of US, hollowing out of its middle class and the worrisome surge in debt," it said.
 
It is the first time since World War II, Nuvama said, that US is facing an adversary —China that combines military might of the Soviet Union and economic might of Germany and Japan, and nurtures strong regional ambitions. 

Status quo, therefore, cannot hold anymore, it said. 

"Some argue this may be a boon for EMs as the greenback might drop amid capital flight from US. Not so straightforward, we think. If capital flees, dollar could surely drop, but US bond yields may spike too. Rising rates amid recession may touch off financial troubles, which may have global spill-over. Surely, the Fed would come to the rescue, but global risk aversion would potentially hurt EMs in the interim," it said.