Mint Primer: If America slows, how might it hit India, others?
- A slowing US economy will drag down global economic growth, which is expected to expand by 3.3% in 2025, slower than the historical average.
Early indicators suggest that the US economy is slowing down. This, even before the adverse effect of President Donald Trump’s policies such as additional import tariffs kick-in. Mint looks at the factors causing the slowdown and what it means for rest of the world.
How did the US economy do in 2024?
In 2024, the US gross domestic product (GDP) grew by 2.8% as against 2.9% in 2023. The year started on a sluggish note. The first quarter GDP growth at just 1.6% was the lowest posted since Q3 of 2022. But it picked up in the second and third quarters to 3% and 3.1% respectively due to higher consumer and government spending, better private investment and improved exports. However, growth slowed down again in the fourth quarter to 2.3% as private investment eased and exports declined. It was the strong consumer and government spending that contributed to the growth.
Then came Trump’s tariffs?
Yes. Soon after assuming office, Trump levied a 25% duty on all imports from Canada and Mexico, the US’ largest trading partners—followed by a 10% tariff on Chinese imports. The tariffs on Canada and Mexico, kept in abeyance for a month, took effect on 4 March. He has also imposed a 25% tariff on aluminium and steel imports effective 12 March.
Also read | Soon after assuming office, Trump levied a 25% duty on all imports from Canada and Mexico
Another 10% duty has been imposed on China. Trump has also threatened reciprocal tariffs from April. China, Canada and Mexico have retaliated with their own duties on American products after the latest round of tariffs. In other words, a full-blown trade war is underway.
Are any tax cuts proposed to boost spending?
The budget blueprint passed by the House of Representatives provides for no new tax cuts. Trump, however, promises to share half the savings made by the Department of Government Efficiency (DOGE) with Americans. The other half will help cut debt. But DOGE’s ability to save $2 trillion from the government’s $7 trillion budget is in doubt as 90% is committed expenditure.
What’s the prognosis on economic growth?
The Federal Reserve of Atlanta’s growth tracker GDPNow shows the US GDP will shrink 1.5% in Q1 of 2025, blaming slower consumer spending, poor private investment and lower exports. Consumer spending, which accounts for two-thirds of GDP fell by 0.5% in January.
Also read | How Donald Trump upended the world in 30 days
Consumer confidence has declined and people are saving up fearing rising prices. Morgan Stanley expects the higher tariffs to shave off a percentage point from US growth. All of this has hit business confidence, hurting private investment.
What does this mean for India?
A slowing US economy will drag down global economic growth, which is expected to expand by 3.3% in 2025, slower than the historical average. The trade war that Trump’s tariffs have triggered will worsen matters, significantly impacting global trade. For India to grow at 6.5% in 2024-25, it needs a 7.6% GDP growth in the fourth quarter and that would not be possible without strong exports. A slowing US economy, Trump’s tariff actions and a trade war will impact exports and eventuality India’s GDP growth.
And read | Mint Primer | Trump’s second stint: What’s in store for India?
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