If we view his actions through this prism, a lot of things start to make sense. First, he hired an external expert, a businessman Elon Musk, to help him trim the bloated expenses of the US administration. He understood well that asking existing government functionaries to trim their costs wouldn’t get him very far.
He needed someone who’d take the axe out not a scalpel. To that end, Musk seems to have delivered the rude shock needed. Trump’s recent pullback to his top team to effect voluntary cuts or Musk will, seems to have struck the right balance. With the objective achieved, Trump has recently hinted that Musk’s tenure and the term of DOGE may end soon.Let’s now look at Trump’s approach to issues and what that can spell for the future of tariffs and trade relationships.
Striking hard bargains
A trademark of Trump’s term has been his focus on driving hard bargains to win something in return for support or concessions. He believes in the businessman’s philosophy of give and take and is out to ensure there are no free lunches.
He has been pushing Ukraine to smoke the peace pipe with Russia and offer up access to rare minerals in return for U.S.’s defence support. Trump is not one for “aid”. His conversations with Israel to diffuse tensions in Gaza again involved handing over the region to the U.S. to turn it into a Riviera of the Middle East.
Here again, after his aggressive stance on throwing all in the region out, he has now softened his stand on driving the Palestinians out. Walk-backs from aggressive initial positions have even been seen on immigration. He qualified his earlier stance to say highly qualified professionals are welcome, as America faces a brain drain threat, especially from China.
And his confidante Musk saw this as a big risk. Recent reports of Chinese professionals being lured back to the homeland with attractive packages can further threaten the U.S.’s position as the technology leader in the world. What this suggests is, that even on trade and tariffs, the last word may not have been said yet. In fact, the imposition of reciprocal tariffs is perhaps just the start of Trump’s hard bargain.
Set-up for negotiations
With the higher-than-expected tariffs, Trump has set the bar for negotiations higher with his trade partners. It suggests that he will give concessions in trade agreements but in return for more than was previously anticipated. And he’ll do bilateral deals that enable him to extract promises beyond trade, as he clearly can’t balance trade out.
Take Vietnam for instance or Taiwan. It is unlikely they can buy as much goods as they export to the U.S. or even manage some measure of balance. Here Trump is likely to extract other deals, with Taiwan it could be strategic on defence to counter China’s presence in the region along with the Quad alliance.
China, EU: The tough dealsThe U.S. had a goods trade deficit of $1.2 trillion in 2024. A large chunk of this was accounted for by China (25%), EU (20%) and Mexico (14%). Within Europe, Germany accounted for the highest deficit share at 7%. And the battle lines are already drawn there, with Germany reportedly looking to bring back its gold from the U.S.
This follows the U.S. indicating it will trim support to NATO and has asked European nations to cough up more for defence. Already, U.S. Secretary of State Marco Rubio has softened the stance on NATO, saying America is committed to the partnership but expects Europe to contribute more towards defence spending. Clearly, the talks in Europe will be a tough one, but Trump is likely to come away with some wins while possibly rolling back tariffs to more rational levels.
| US goods trade with the world | |||
| Year | Export | Import | Deficit |
| 1990 | 393812 | 494842 | 101030 |
| 2000 | 781918 | 1218021 | 436103 |
| 2010 | 1278493 | 1913858 | 635365 |
| 2020 | 1429995 | 2331477 | 901482 |
| 2024 | 2065131 | 3267461 | 1202330 |
Figures in $ million
| Top U.S. Goods trade partners (2024) | ||||
| Country | Export | Import | Deficit | Deficit Share % |
| Canada | 349360 | 412696 | 63336 | 5.3 |
| Mexico | 334041 | 505851 | 171810 | 14.3 |
| China | 143546 | 438947 | 295401 | 24.6 |
| Japan | 79741 | 148209 | 68468 | 5.7 |
| Germany | 75613 | 160437 | 84824 | 7.1 |
| South Korea | 65542 | 131549 | 66007 | 5.5 |
| India | 41753 | 87416 | 45663 | 3.8 |
| UK | 79941 | 68085 | -11856 | -1.0 |
| Taiwan | 42337 | 116264 | 73927 | 6.1 |
| Vietnam | 13098 | 136561 | 123463 | 10.3 |
Figures in $ million
Talks with China are going to be the most important one for Trump, by far. Xi isn’t likely to buckle under the usual threats given how trade is positioned. Already China has imposed 34% reciprocal tariffs on U.S. imports, setting things up for a face-off. China is clearly a force to reckon with today, not just because of the size of its economy, but because of its geopolitical influence and its progress on technology.
The leadership of the U.S. in technology is today threatened by the advances in China in areas like AI and robotics. Technology and defence have been two pillars of strength for the U.S. and now these too are under threat.
But what’s important to note is how things have come to the current stage for trade. In 1985, the U.S.’s deficit in trade with China was just $6 million. It swelled to $10 billion in 1990, to $80 billion in 2000 and to $273 billion by 2010. This unchecked growth in trade imbalance over 25 years is responsible for where the U.S. finds itself today.
And much as Trump may try, it isn’t possible to reverse the mistakes of two-and-a-half decades in one Presidential term. Imposing very high tariffs on China is likely to hurt the U.S. more severely than it might imagine. Yet, Trump is likely to walk away with some wins, including perhaps Tik Tok, in his talks with Xi, but Taiwan will also likely figure in the parleys and that will require careful manoeuvre.
| US goods trade with China ($mn) | |||
| Year | Export | Import | Deficit |
| 1985 | 3856 | 3862 | 6 |
| 1990 | 4806 | 15237 | 10431 |
| 2000 | 16185 | 100018 | 83833 |
| 2010 | 91911 | 364953 | 273042 |
| 2020 | 124582 | 432548 | 307966 |
| 2024 | 143546 | 438947 | 295401 |
India less of a bother
Compared to some of the other big trading partners of the U.S., India is likely to be less of a bother. Despite trade of $129 billion with the U.S. in 2024, India’s contribution to the U.S.’ trade deficit was 3.8%, that’s far less than Vietnam at 10% or Taiwan at 6%.
Besides, with some concessions on automobiles and higher spending on defence and crude imports from the U.S. the situation should be containable. Nuclear power is another area where the U.S. could look for favourable policies.
A happy ending?
Trump clearly seems to be gambling that he can strike deals and come out looking like a big winner well before the U.S. economy and the world descends into a deep economic rut. Will he? That remains the big question and the future of the world hangs in the balance.
But don’t expect everything to be ironed out in a jiffy. We are in for some trying times till order returns. Investors need to learn to be patient, not adventurous in these circumstances. Stay calm, stay invested.
