The US: A Less Reliable Partner? That’s the bold claim from S&P Global Ratings’ chief economist, Paul Gruenwald, who recently shared his insights during a visit to India. In a candid conversation with TOI, Gruenwald unpacked the complexities of the global economy, from the shifting tides of US economic policies to India’s impressive growth trajectory. But here's where it gets controversial: Gruenwald suggests that the US is increasingly viewed as a less dependable ally on the world stage, prompting countries like India to rethink their trade and investment strategies. Let’s dive into the details.
Global Economic Uncertainty: A Shifting Narrative
When asked about the global economy’s uncertain landscape, Gruenwald noted a significant shift in focus over the past six months. Back in April, tariffs and their potential to stifle growth dominated discussions. However, the actual impact of tariffs hasn’t been as severe as initially feared. Instead, the conversation has pivoted toward upside risks, such as the boom in data centers and capital expenditure (capex). Yet, Gruenwald cautions that lingering policy uncertainty in the US continues to ripple across the globe, keeping markets on edge.
Did Economists Overestimate US Tariff Impact?
Gruenwald attributes the initial overestimation of tariff effects to three key factors. First, the tariff rates announced by President Trump were significantly higher than what ultimately took effect. For instance, the effective tariff rate in the US settled around 17%, far below the 30% peak initially anticipated. Second, there has been minimal retaliation from other countries, with most accepting the tariffs as a cost of doing business with the US—except for China, which initially matched US tariffs tit-for-tat. Third, numerous exemptions have softened the blow, with the actual tariffs collected by the US closer to a 10% effective rate.
Interestingly, the burden of these tariffs has largely fallen on businesses—wholesalers, retailers, and importers—rather than consumers. Gruenwald estimates that the final incidence will be roughly split between businesses and households. However, the pass-through to consumers has been slower than expected. Notably, there hasn’t been a widespread relocation of manufacturing back to the US, suggesting the tariffs functioned more as a tax on US imports rather than a catalyst for reshoring.
India’s Economic Outlook: A Bright Spot Amid Global Shifts
Turning to India, Gruenwald highlights its position as one of the few economies with unresolved tariff issues alongside Brazil. However, he remains optimistic about a potential resolution, which could eliminate lingering uncertainty. Despite India’s relatively closed economy and limited dependence on the US, Gruenwald observes a broader global trend: countries are diversifying their trade and investment portfolios, moving away from the traditional Washington consensus. India, too, is reevaluating its international relations and risk management strategies.
Investors’ Perspective: India’s Growth Story
India stands out as the fastest-growing major emerging market, having taken the growth baton from China in recent years. Gruenwald emphasizes India’s strong tailwinds and potential for long-term, sustained growth. If India maintains its current trajectory, a 6.5% growth rate over multiple years is not only achievable but also highly respectable. In contrast to China’s growth model, which relied heavily on capital deepening rather than productivity, India has the opportunity to strike a better balance. A consistent 6% to 7% growth rate would be a remarkable achievement.
The Controversial Question: Is the US Losing Its Global Standing?
Gruenwald’s assertion that the US is seen as a less reliable partner raises a provocative question: Are we witnessing a fundamental shift in global economic alliances? As countries like India diversify their trade and investment strategies, the US’s traditional dominance may be waning. But is this a temporary setback or a long-term trend? And what does this mean for the future of global trade and diplomacy? We’d love to hear your thoughts in the comments—do you agree with Gruenwald’s assessment, or do you see the US maintaining its global influence? Let the debate begin!
