Swaminathan Aiyar, Consulting Editor, ET Now, says geopolitical tensions are easing with positive developments in India-Pakistan relations and progress in US-China trade talks, though significant hurdles remain. While the World Bank anticipates minimal economic impact from the India-Pakistan situation, the stock market is poised for recovery. Trump's tariff approach may face resistance, particularly from Europe, but overall, the outlook is brighter after weeks of uncertainty.
What is your view on current geopolitical scenarios?
Swaminathan Aiyar: After several weeks of uncertain and difficult times, suddenly we are getting very good news. It is good news on the Indo-Pakistan front. It is good news on the China-USA front. It is good news basically all around. So, some of the really worst case scenarios are clearly gone. Whatever we are dealing with are among the better case scenarios, no matter what the actual outcome is. I am very glad that the India-Pakistan thing has wound up and I checked with somebody in the World Bank. Basically they said we had not expected any significant effect on either economy and that appears to be the case. So, this would not even register as a blip on the overall economies of the two countries.
So, as far as we are concerned, the stock market, which has gone down, has some catching up to do and I am sure investors will be in for a somewhat good time. The same thing is true of the USA and China. Mind you, I do not think they are close to what you might call a final deal. Mr Trump said the other day that the 80% tariff against China looks about right. It might look about right to him. I am sure it will not look right to Mr Xi Jinping. So, they would still have some considerable distance to go yet. But the fact that they have made some progress is good news.
Overall, we are seeing geopolitical tensions decreasing and it appears that politically there is a lot of force in reducing the geopolitical tension and not increasing it as was the case, I would say, one month ago. So, this is good news. Let us see how far this goes and if all goes well, perhaps some of this will not look so bad. But let us remember, Mr Trump has a very firm conviction that tariffs are the right way to go, and bully others into proper positions.
This may work up to a point and with some people. Beyond a point, it is going to cause disruption. I would say that Europeans are not easily going to give way and certainly they have ways of retaliating against the big American financial companies. But overall, after some three-four weeks of considerable uncertainty, things have gotten much brighter and we should all smile today.
What is the assumption you work with – it is going to be back to pre-tariff days or do you think there will still be a catch when we hear from both parties when that official press conference is slotted today?
Swaminathan Aiyar: We do not know for sure, but the entire notion of liberalising and lowering tariff barriers has wittingly or unwittingly been given a push by Mr Trump. So, the deal that we achieved with the UK was a good deal and it would not have been easy had there been no Trump scare to begin with. We are certainly going to bring down our tariffs vis-à-vis the USA and on the other way. This then sets up a brighter future for India and the EU.
So, all I can say is that overall, I see things getting better. The big problems will still be regarding the USA and China. The big thing is still going to remain if there are significant high US tariffs. Please remember, in any case they have this baseline of 10% across everything plus 25% for aluminium, steel, autos and they are talking about something on pharma and semiconductors as well. Overall, whatever the USA is going to do is going to have a slowing effect on international trade. But at this point, we can say the worst case scenarios have gone.
Whatever is going to happen would be one of the better case or mid-case scenarios. Some good news is better than none. But please let us also not get overenthusiastic. Let us be very clear that with Mr Trump's fundamental position on using tariffs to get other countries into line, up to a point, you can get away from the worst case scenarios, but it is going to slow down world trade, GDP growth as well as Indian GDP growth. We are going to have some negative effects. How big that negative effect is, we do not know yet. Let us see what the actual outcomes are.
What is your view on current geopolitical scenarios?
Swaminathan Aiyar: After several weeks of uncertain and difficult times, suddenly we are getting very good news. It is good news on the Indo-Pakistan front. It is good news on the China-USA front. It is good news basically all around. So, some of the really worst case scenarios are clearly gone. Whatever we are dealing with are among the better case scenarios, no matter what the actual outcome is. I am very glad that the India-Pakistan thing has wound up and I checked with somebody in the World Bank. Basically they said we had not expected any significant effect on either economy and that appears to be the case. So, this would not even register as a blip on the overall economies of the two countries.
So, as far as we are concerned, the stock market, which has gone down, has some catching up to do and I am sure investors will be in for a somewhat good time. The same thing is true of the USA and China. Mind you, I do not think they are close to what you might call a final deal. Mr Trump said the other day that the 80% tariff against China looks about right. It might look about right to him. I am sure it will not look right to Mr Xi Jinping. So, they would still have some considerable distance to go yet. But the fact that they have made some progress is good news.
Overall, we are seeing geopolitical tensions decreasing and it appears that politically there is a lot of force in reducing the geopolitical tension and not increasing it as was the case, I would say, one month ago. So, this is good news. Let us see how far this goes and if all goes well, perhaps some of this will not look so bad. But let us remember, Mr Trump has a very firm conviction that tariffs are the right way to go, and bully others into proper positions.
This may work up to a point and with some people. Beyond a point, it is going to cause disruption. I would say that Europeans are not easily going to give way and certainly they have ways of retaliating against the big American financial companies. But overall, after some three-four weeks of considerable uncertainty, things have gotten much brighter and we should all smile today.
What is the assumption you work with – it is going to be back to pre-tariff days or do you think there will still be a catch when we hear from both parties when that official press conference is slotted today?
Swaminathan Aiyar: We do not know for sure, but the entire notion of liberalising and lowering tariff barriers has wittingly or unwittingly been given a push by Mr Trump. So, the deal that we achieved with the UK was a good deal and it would not have been easy had there been no Trump scare to begin with. We are certainly going to bring down our tariffs vis-à-vis the USA and on the other way. This then sets up a brighter future for India and the EU.
So, all I can say is that overall, I see things getting better. The big problems will still be regarding the USA and China. The big thing is still going to remain if there are significant high US tariffs. Please remember, in any case they have this baseline of 10% across everything plus 25% for aluminium, steel, autos and they are talking about something on pharma and semiconductors as well. Overall, whatever the USA is going to do is going to have a slowing effect on international trade. But at this point, we can say the worst case scenarios have gone.
Whatever is going to happen would be one of the better case or mid-case scenarios. Some good news is better than none. But please let us also not get overenthusiastic. Let us be very clear that with Mr Trump's fundamental position on using tariffs to get other countries into line, up to a point, you can get away from the worst case scenarios, but it is going to slow down world trade, GDP growth as well as Indian GDP growth. We are going to have some negative effects. How big that negative effect is, we do not know yet. Let us see what the actual outcomes are.
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