Impact of US Economic Slowdown on Global Trade and India’s Growth Prospects
The US economy is showing signs of slowing down, with 2024 GDP growth falling to 2.8%. Trump’s tariffs have exacerbated this slowdown, causing a trade war that negatively affects global trade. Consequently, India’s growth prospects may decline significantly if the US economy continues to falter, as it relies heavily on exports for economic expansion.
Recent indicators suggest that the US economy is experiencing a slowdown, even before the impact of President Donald Trump’s tariffs fully materializes. In 2024, the US gross domestic product (GDP) grew by 2.8%, a slight decrease from 2.9% in 2023. The year began sluggishly with a GDP growth of just 1.6% in the first quarter, the lowest since the third quarter of 2022. However, the economy rebounded in the following quarters with growth rates of 3% and 3.1%, driven by increased consumer spending, government expenditure, and improved private investment. Yet, growth faltered once again in the fourth quarter, ultimately concluding at 2.3% due to reduced private investment and declining exports.
Upon taking office, President Trump imposed a 25% tariff on imports from Canada and Mexico, alongside a 10% tariff on Chinese goods. These tariffs, particularly those on Canada and Mexico, were enforced following a brief suspension, while additional duties on aluminium and steel imports became effective shortly thereafter. The escalating tensions have led to reciprocal tariffs from Canada, Mexico, and China, marking the onset of a substantial trade conflict.
The House of Representatives passed a budget blueprint that proposes no new tax cuts aimed at boosting consumer spending. President Trump has indicated intentions to allocate half of the savings realized through the Department of Government Efficiency to American citizens, while the remainder is intended to assist in debt reduction. Nonetheless, the feasibility of the Department achieving $2 trillion in savings from the federal budget is questionable, given that a significant portion of expenditures are fixed.
Current forecasts, particularly from the Federal Reserve of Atlanta’s GDPNow tracker, predict a contraction of 1.5% in US GDP for the first quarter of 2025 due to decreasing consumer spending, weak private investment, and declining export figures. Consumer spending, which is vital as it constitutes two-thirds of GDP, decreased by 0.5% in January. Moreover, consumer confidence has diminished alongside savings behavior influenced by anticipated inflation, impacting business confidence and private investments.
For nations like India, a decelerating US economy poses significant risks for global economic growth, projected to be 3.3% in 2025, below historical averages. The ongoing trade war initiated by Trump’s tariffs further exacerbates these challenges, complicating global trade dynamics. To achieve a target growth rate of 6.5% for 2024-25, India requires a substantial GDP increase of 7.6% in the fourth quarter. This ambition hinges on robust export performance, which remains jeopardized by a weakening US economy, tariff-related actions, and an escalating trade conflict.
In summary, a slowdown in the US economy, coupled with President Trump’s tariff policies, poses a serious threat to global economic stability and growth, notably affecting countries like India. The implications of these tariffs are evident in declining consumer confidence and spending, which consequently hinder private investments and exports. For India to sustain its growth rate, a strong export performance is crucial, highlighting the interdependency of global economies.
Original Source: www.livemint.com
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