Rahul Jacob: Expect an early Halloween as trade scares worsen globally

More than a decade ago, writing about its October edition, when buyers from the West throng its halls hoping to stock up ahead of Christmas, I likened it to chancing upon an army of Santa Claus’s helpers and discovering they were nearly all Chinese.

Also Read: Rahul Jacob: Recall what Keynes and Kennan had to say

This year, though, set against the backdrop of Trump tariffs, all is change. Business deals for Chinese suppliers are expected to plummet. The government organizers have gone so far as to send exhibitors warnings that there will be inspections at the end of each phase to deter pessimistic sellers from shutting stalls early.

In the US, meanwhile, retailers are warning that consumers face price increases so intense that they might want to cancel Christmas. The Budget Lab at Yale University estimates that the cumulative effect of America’s 10% tariff would cost the average US household an additional $4,700 a year. Retailers dependent on China for supplies would likely have to raise prices more. 

A large US bicycle maker, Kent International, was reported as saying bicycle prices would rise by 50%. European wines that ordinarily cost $30 a bottle may retail at $50. In testimony before the US Congress last year, Gordon Hanson, a professor at Harvard University, said that the earlier (and much milder) trade war in 2018 under Trump 1.0 had “resulted in higher prices for U.S. consumers and lower average real income for U.S. households."

We face a new world of trade disorder, nowhere more so than in the US and China as the giant economies seek to decouple from each other. What the effects of significantly higher prices will be on US consumption is harder to predict than what early estimates suggest. 

Also requiring a crystal ball is what the effects on domestic industries in the developing world will be as China seeks to divert or dump exports. Korea’s 20-day trade data, released on 22 April, offered an early reading of the generalized collateral damage. Exports fell 5% from last month, with the drop accentuated in the case of exports to the US, down 9%. India’s merchandise exports for 2024-25, meanwhile, were flat, while the trade deficit with China rose to a record.

Also Read: Trade face-off: Will Trump’s America back down first or Xi’s China?

In a world of weaker trade flows, exporters from India and other developing countries will need extra agility to be globally competitive.

More than a decade ago, when I used to report on the Canton trade fair regularly, there were bold predictions that China would struggle to retain its market share as labour costs rose. But, it turned out that sourcing from China came with tangible benefits such as highly efficient customs clearance and superb ports and highways, all of which made foreign buyers stick with it as the dominant supplier for a range of goods. This time is different.

The risk looming large is that adjusting to the constant moving of goalposts in Washington will both slow down global trade and lead to supply-chain disruptions. China has such a commanding share of exports of everything from footwear to microwaves and computers that even without constant policy flip-flops, supply chains would be under stress. For the Chinese economy, finding new buyers abroad while trying to boost consumption at home—even as its economy slows because of the bursting of its property bubble—is going to be a huge challenge. 

What the US and Chinese economies must do in essence is akin to riding a single-wheel cycle and then, as in a circus, leap to another unicycle without falling.

The big losers are large multinationals, notes the author Ruchir Sharma in an op-ed this week for the Financial Times. He observes that “profit margins for S&P 500 companies nearly doubled to around 13 per cent after 2000, coinciding with China’s entry into the WTO. Many US giants generated ‘supernormal’ profits, by cashing in on the appeal of American brands and outsourcing production to nations with the cheapest costs." 

Also Read: Indira Rajaraman: US Liberation Day tariffs target the WTO’s playing field

Reporting from Yiwu, the Financial Times’ Beijing bureau chief Joe Leahy found that this trading hub in south China had ingeniously cornered the production of Trump memorabilia, ranging from baseball caps to solar-powered Trump dolls. (As the Americanism goes: You cannot make this stuff up.) Trump baseball caps cost $1 in Yiwu but retail for as much as $50 in the US, a graphic example of ‘supernormal’ profits.

For retailers in the US and factories globally looking to position themselves as alternatives to China, the new normal is abnormal volatility, however. A couple of weeks ago, the US commerce secretary was arguing that smartphone production would move back to the US, but this was followed by a 180° about-turn when smartphones were exempted from the hefty tariffs slapped on China, where Apple still makes 80% of its phones. 

This week, the US announced duties of up to 3,521% on solar panels from four Southeast Asian nations to prevent Chinese factories from re-routing exports from there. The global economy may be in for an early Halloween rather than Christmas.

The author is a Mint columnist and a former Financial Times foreign correspondent.