The term ‘new normal’ grew fashionable as a consequence of the covid pandemic. Looking ahead at that time, a Pew Survey showed that a plurality of experts believed that the pandemic would: 1) worsen inequality; 2) increase the influence and power of big tech firms; 3) multiply the spread of misinformation; and 4) fan the flames of authoritarianism. Perhaps an overall environment favouring new normals was born then.
Also Read: Nitin Pai: Operation Sindoor sets a new normal for India’s strategy
Take the case of international trade. President Donald Trump, representing that beacon of free trade that hitherto was America, imposed wide and deep tariffs of such a magnitude that the world was taken by shock. He imposed tariffs on allies and adversaries alike, upending convention. He then singled out China for punitive tariffs of 125%.
The New York Times carried a copy of a customs bill for a batch of T-shirts shipped from China to the US in April that amounted to a total tariff of 185%. This figure is made up of a 125% ‘reciprocal tariff,’ a 20% fentanyl-related punitive tariff, a 7.5% carry-over Section 301 tariff from Trump’s first term, and a 32% base tariff rate on garments.
That was in April. In May, after secret talks in Geneva, the 125% tariff rate was dropped to 10%, resulting in a headline 30% tariff rate for China (with the 20% fentanyl tariff still in place). The same package of T-shirts would now attract a total tariff of 69.5%. The 115-percentage-point ‘climb-down’ is significant, but the rates that remain would still have been unimaginable even a few weeks ago.
This new normal for everyday items is sure to stoke US inflation if tariffs aren’t cut further. But given the way it happened, the market reaction to the 30% China rate is less severe than if this rate had been proposed in the first place. The S&P 500 equity index is flat on the year and almost back to its level on the day of Trump’s inauguration.
Also Read: Tariff whiplash: The US truce with China offers hollow relief
Tariff wars started by the US will make way for bilateral trade agreements (BTAs). Inevitably, BTAs will provoke confrontation between peers, as the US-UK trade framework has already done with China. This was precisely the logic of creating a multilateral trade order under the World Trade Organization (WTO). The global trade order under the WTO that has served the world remarkably well for decades now seems at risk of dying by a thousand BTA cuts.
Closer home, the conflict between India and Pakistan first escalated and then de-escalated quickly. India responded to the April terrorist attack in Pahalgam in Kashmir that killed unarmed tourists by using missiles to precisely strike terrorist bases in Pakistan.
Pakistan escalated this into a military conflict with drones or unmanned aerial vehicles (UAVs) and missiles targeted at Indian military installations. In response, India struck Pakistan’s air defence system and airfields deep within Pakistan. And then it ended. Abruptly. No one seems to be sure of exactly why. While de-escalation has happened and the ceasefire has held, it is unclear whether one side or both had to climb down.
Also Read: Nitin Pai: Operation Sindoor leaves India better placed for the next round
Regardless, the short conflict has left us with a new set of benchmarks that Prime Minister Narendra Modi has laid out: 1) That India will strike terrorists and their sponsors even if they are deep inside Pakistan; 2) India would carry these actions out on its terms; and 3) India would not be cowed down by “nuclear blackmail.” Without the provocation by terrorists in April and the subsequent action, this ‘new normal’ would have been considered extremely unlikely.
President’s Trump’s adversarial trade position against China, his lack of interest in Europe as well as the North Atlantic Treaty Organization (Nato) and his wooing of West Asia move the centre of gravity squarely to Asia. One direct consequence is that several more countries may become nuclear-capable in the coming years.
This week, in another first, the American president met the former Al Qaeda-linked President of Syria, Ahmed al-Sharaa, and promised to lift sanctions on his country, although a $10 million US bounty on his head was removed only in December. Even more than multi-billion-dollar deals with Saudi Arabia, the UAE and Qatar, the re-establishment of a Syrian link is significant, particularly if more Arab countries join the Abraham Accords with Israel.
Also Read: The time is right for a reset of India’s trade ties with China
This short cycle of escalation, de-escalation and setting of new benchmarks over the past month or so is greatly aided by a highly polarized global social media where facts and pseudo-facts are indistinguishable. Many have called this a “flurry of great distraction” amid a great churn.
A society needs to marinate in change if it is to accept it. Of course, the occasional revolution can happen. But if a society faces frequent revolutions, then uncertainty and angst could cause real dislocation. America modelling this behaviour could encourage other countries to follow.
P.S: “The Asuras (demons) and Devas (divinities) are churning the ocean of milk. Will they extract Amrit (nectar) or Halahala (poison)?”—Paraphrased from the Shrimad Bhagavatam, Chapters 12-18.
The author is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand
#Deescalation #normals #todays #churn #limit
