Just Don't Freeze

“Just Don’t Freeze”,

I wrote last weekend, in response to the volatility President Trump injected into global asset markets. The contagion spread to India, where the volatility index (VIX) on our equity markets surged from 12.5 to 22.5, before ending the week at about 20.

In response to my post, the good folk at Ken, Rohin and Praveen, asked me to chat with them on their podcast, Two by Two, about how India should react to Trump’s radical pronouncements.

“Cut all tariffs to zero,” I said, libertarian to the core.

“But what about the need to protect Indians from global competition?”

The only Indians who are protected by such protection are the industrialists who can sell inferior goods at superior prices. We’ve been there before, for at least 44 years, from 1947 to 1991.

One of my clearest visual memories of the early 1980s was a row of black Mercedes saloons outside a Birla office in Mumbai. The Birlas, the same family that owned Hindustan Motors, which produced the clunky Ambassador car, based on a Morris Oxford design from the 1950s. Why bother to improve your offering when you sit behind trade barriers? Especially when you are making enough money that you and your family don’t have to ride the same shitty cars…

Trump’s policies are a moving target: on Friday night, he announced a massive rollback of tariffs on smartphones and laptops. I wonder whether he took a call from Tim Cook. Lots of people are going to be a lot richer on Monday when trading in Apple stocks opens. Those who didn’t freeze, that is.

Where was I? Yes, Trump’s tariff plans, which are generating more corrigenda than Indian currency policy post-demonetisation. Indian government officials say they are fast-tracking trade negotiations with the US. The US government says Trump’s announcements have crowded their inbox with proposals from governments around the world.

The US kicked off a 90 day reprieve from punitive tariffs last week, presumably to force trading nations like ours to lower their trade barriers. Trade negotiations can go on forever, especially when queues are forming at the doors of US trade offices. The simplest proposals will work best.

Ours should be:

India lowers all tariff barriers to zero. No exceptions.

Not for Trump’s sake. For our sakes - for the welfare of the Indian consumer.

The next 87 days, or however many are left, are going to be exciting for asset markets.

Just Don’t Freeze.