25% tariff, treatment of Ukraine prove Trump’s bite is worse than his bark; countries likely to retaliate: Swaminathan Aiyar

Swaminathan Aiyar, Consulting Editor, ET Now, says Trump actions are proving to be worse than his words, especially regarding tariffs and Ukraine. What will happen next? Swaminathan Aiyar says in the case of tariffs, this is just the beginning. Retaliation is coming. Europe is tired of Trump. Initially, they considered accommodating him, but now they are rejecting that idea. Trump seems to want to abandon Zelensky and push for a peace that favors Russia, while Europeans are firmly against this stance. Right now, the whole world is in a geopolitical crisis over and above this trade war. This is something that is completely new and the two are related. They are not unrelated. And there is going to be a striking back at him. People are going to say, look, are we going to be trampled over by Trump for four years or are we going to retaliate? Aiyar thinks countries are going to retaliate against American moves.


Let us begin with tariffs because that is what has been on the market's mind. A 25% tariff has been imposed on Canada and Mexico. Trump has gone on record to say that.
Swaminathan Aiyar: Well, all I can say is there were some people who thought that Trump's bark will be more than his bite and they noted that he talked about tariffs and then he paused them. Well, now you realise that his bite is just as bad as his bark. And not only has Canada and Mexico realised that, so has Zelensky. Trump is out to bite in a big way. And basically, he wants to bully various people into situations. I suspect that everybody will begin to strike back.


In the case of Canada, some northern parts of the USA are dependent on electricity supplies from Canada. The Canadians have threatened – at least one Canadian minister has said – that they can retaliate by cutting off electricity to the USA. I do not know whether that will happen, but it gives you an idea of what will happen. But the fact that we are now in an open trade war tells you that it is not going to end just with Canada, Mexico, and China. If he is going to go all out against these guys, please let nobody think he will not come after lots of others.

India will be on that list, too. But India is not that important, it is a relatively small trader. But let nobody make any mistakes. India will be on that list. This guy is out to crunch the rest of the world and show I am giving America a great deal by stamping my feet on top of all these guys. I do not care if they are allies like Canada. I do not care if they are people who we have supported militarily in the defence of democracy like Ukraine, I am just going to say, if you do not grovel in front of me and give me what I want, if you dare stand up to me, as Zelensky did, then I am going to go for your neck and I am going to throttle you as hard as I can.

So, the fact that his bite is even worse than his bark is now evident both in the tariffs and in the case of Ukraine. What are the consequences? As far as the tariffs are concerned, I said, it is not going to end here. It is going to go and there is going to be retaliation. Europe is now fed up with Trump. Earlier there was a talk of just giving way to him. Now they are saying, to hell. Because what is happening is that while Trump wants to dump Zelensky and force a kind of Russian-ordained peace, the Europeans are saying, we cannot accept this particular position.

This then leaves a question: what will happen in Ukraine? How long will Ukraine be able to fight if there is no American support? The answer is, they will be able to fight for some months, they are not going to keel over immediately. There is also a very substantial Ukrainian production of drones which have been reasonably effective against conventional Russian arms. So, let us see what happens. But it is up to Europe to step up and show to what extent it can close the gap being left by the Americans.

I do not think there is going to be any quick Trump and Putin-ordained peace in Ukraine. The Europeans are going to stand up and support Zelensky for the time being. What happens beyond that? Whether the Europeans have a proposal for a ceasefire backed by guarantees which can be put on the table, remains to be seen, but the attitude of Europe right now is that we are not going to allow Trump to bully his way into all these issues. So, we are going to see a fight back against Trump by Canada, by Europe.

But once these tariffs come into effect, what would it mean for the American economy because they too needed the world and everyone has been talking and ridiculing the tariffs, saying that everything in America will become more expensive, inflation is going to spike up, and it is not even good for the US economy.
Swaminathan Aiyar: If you ask me, what he is doing is disastrous for the USA as well as the global economy. That would be my view. Mr Trump seems to think that because on his last occasion when he put up some tariffs on steel and aluminium, there was no great rise in inflation, this time also he will get away with it. I am afraid the situation is very different.

Right now, the whole world is in a geopolitical crisis over and above this trade war. This is something that is completely new and the two are related. They are not unrelated. And there is going to be a striking back at him. People are going to say, look, are we going to be trampled over by Trump for four years or are we going to retaliate? The answer is they are going to retaliate because Trump's behaviour is so obnoxious! His aim seems to be to rip the dignity off the other side. And because of that, let us see what happens.

I would be very interested in seeing that if Canada cuts off electricity to Mr Trump, what will he do? So, let us see. I think retaliation is going to take place. This is going to be bad for the American economy. As far as I can see, these tariffs will lead to prices rising in America. This will be reflected equally in the stock market. You will find that the stock market is very unhappy. Earlier they thought Trump was just barking, and not biting. Now they know that their worst fears are coming to reality. So, let us see. Mr Trump is sensitive to the stock market above all. If the stock markets and bond markets in America begin to move against him, I wonder whether then he will have a rethink on the whole thing. Let us watch and see that.

Are tariffs truly an effective tool to curb China's dominance because earlier Trump was talking about a 10% tariff. Now it has been hiked to 20%. And the bigger question is how is China likely to retaliate? If you can share your thoughts on this.
Swaminathan Aiyar: China retaliated last time too. Funnily enough, one form of Chinese reaction was to start investing in Vietnam and Malaysia and other countries and exporting from there. Which is another way of doing the same thing. I mean, it has retaliated. It had retaliated earlier against agricultural exports from the USA. China is the biggest consumer of soybeans in the world because it needs soybeans to produce pork. The standard meat in China is pork. So, it imports an enormous amount of soybeans. It will probably say, I am going to have a huge tariff put on soybean imports from there. Instead, we will import soybeans from Latin America or something like that or other kinds of meal other than soybeans.

So, in this kind of retaliation, the Americans will be hit where it is politically sensitive in their farm states. Now, all these farm states have been voting for Trump. But if all the farm states find that others are putting up agricultural barriers and American agriculture is going to be hurt, that is going to be one more internal problem for Trump on top of all the others.