US President Donald Trump made his policy intentions abundantly clear on Tuesday in his State of the Union speech. He is now stirring so many pots so vigorously that the world is in a state of bemused bewilderment. Close scrutiny of Trump’s actions reveals both a well thought out approach and a cavalier disregard for consequences. Thus, on the question of US global power, he is quite clear that it should be a multipolar world where it’s not America alone that bears the brunt of the costs and the opprobrium. Such multipolarity will give India a bigger voice in global affairs.

Trump is also for low and stable global energy prices which no one can object to. His methods for achieving that goal might well raise some hackles. India will be a major beneficiary. On tariffs, however, he is dead wrong. Higher all-round tariffs will only lead to a global compression of economic activity. There is enough evidence of this throughout history and most recently in 1930 when the Smoot-Hawley Tariffs Act eventually brought on the Great Depression. Trump is taking refuge behind what’s called the ‘fairness proposition’ that he is doing only what the others are doing. That sounds fair except that it will be unpredictable in its consequences just as it was in the 1930s.

Trump is also wrong in confusing a manageable deficit with a balanced budget, that is, a zero deficit. The world of economics has not forgotten that one of the most potent economic ideas to come out of the Great Depression was the Keynesian idea of the government undertaking deficit financing in order to boost aggregate demand when it was deficient over a long period of time. A downturn in global trade will lead to deficient aggregate demand but if Trump insists on a balanced budget, there will be no policy tool to increase it. The overall consequence will be a huge global depression that engulfs the product, financial and labour markets. It must not be forgotten that it was only the Second World War that finally gave a boost to aggregate demand.

There is then the overarching question of a global reserve currency. Until 1945 it was the pound sterling. But the pound was so weakened by the Great Depression and the War that the dollar quickly replaced it. Trump must pause and reflect on whether he wants the dollar to lose its position of pre-eminence, as new trading blocs come into existence. The uncertainty surrounding this issue is already leading to a surge in gold prices. India is unlikely to emerge unscathed from all this except perhaps in the matter of energy prices, which will not skyrocket. In all other respects, however, it’s going to be worse off in varying degrees, including in the matter of losing its ability to be ambiguous in international affairs. It appears to be pinning its hopes on a trade agreement with the US. That will allow it to buy time. But overall the Indian economy will have to navigate very choppy waters over the next four or five years which will require ingenuity and sagacity in abundance.