For capital, it is the best of times and it is the worst of times. Rarely has it been wooed so assiduously and systematically by so many, and rarely has it been threatened with utter destruction by so few.
Donald Trump will leave a legacy in many domains but, arguably, his most abiding impact will be in remaking modern capitalism and shaking the foundations of the international economic architecture. Being in the middle of a historic moment makes it difficult, if not impossible, to judge it accurately. But make no mistake. Irrespective of the scope and durability of his tariff announcements, the profound importance of this moment in shaping how the world does business and makes money cannot be emphasised enough.
Shorn of complexities, here is what Trump is doing: To attract capital, he is punishing capital.
Trump’s fundamental belief is well-known by now. He sees globalisation as having been a one-way street where American capital went out of America, foreign capital didn’t come to America, and the world — from China to Europe to India — used the American market to profit at the cost of American producers and workers. To reverse it, and get both American and foreign capital back home, he wants to use what he thinks is his strongest leverage — the size and purchasing power of the American market. And he believes tariffs are the most effective instrument to do so, since higher import duties make access to that big market a lot more difficult and incentivise companies to make in America itself.
This retributive approach, the administration’s thinking goes, will force capital to come back to the US and lead to unprecedented onshoring. It will force other countries to open up their markets for American produce. It will ensure American companies are treated well in foreign markets. In the short term. Trump appears aware that the retributive approach will lead to inflation, cause market uncertainties, and create unpredictability. But he clearly calculates that he can bear the political cost for it at the moment in that larger quest of bringing capital back.
There are legitimate questions about this approach. Given that the country which received the highest foreign direct investment flows last year was — surprise, surprise — the US itself, is such a punitive approach needed at all? Aren’t the other incentives that Trump has already rolled out enough to attract capital? Doesn’t his worldview betray a fundamental misunderstanding of how relatively open trade and complex supply chains work in reality and how everyone can benefit from it? Won’t American manufacturers who depend on imports to make in America suffer too? Is it wise to sacrifice the tangible interests of American consumers for the purpose of potentially protecting American workers? In any case, aren’t the fundamentals of employment creation and economics changing with the advent of Artificial Intelligence? Is such a direct assault on nearshoring and friendshoring necessary and useful when the strategic objective is to reduce dependence on China? Is inflicting economic pain through inflation and, therefore, reducing the space for the Federal Reserve to reduce interest rates, and even risk a domestic recession, really sound? What are the ripple effects and second- and third-order consequences of making America come across as a revisionist, extractive and predatory economic power?
Events (and data) will answer all these questions in due course. But what is clear is that while this moment offers opportunities for capital — every moment does — businesses are confronting their most vulnerable position. When there is such policy unpredictability, when you don’t know if you can import goods you need to manufacture products, when you don’t know if you can export goods and earn the same margin, when your market value is subject to the whims of presidential statements that change every day, it is deeply unsettling.
But what is also true, and analytically most significant at the moment, is that this punishment to capital and the states that are the primary investment avenues for capital exporting to the US is to draw capital itself.
This moment of great vulnerability for capital actually speaks of how critical capital has become to bolster the legitimacy of domestic political systems. This is not new in itself, but the urgency of the need for capital is striking. For all the talk of Wall Street as evil in the MAGA corridors, or national champions as a problem in Indian discourse, every State is doing all it can to get investments. This is taking the form of industrial policies, of massive subsidies, of regulatory clearances, of policies that are geared for specific companies. The Trumpian twist is introducing a stick with the carrot.
And this is because for all political leaders, employment creation at a time of rising costs and aspirations has become the central political challenge. They all want capital, and they want capital that is aligned with their political objectives. But this challenge is compounded by China’s overwhelming manufacturing dominance. Beijing is the home to capital driving exports. Capital from the Chinese State is making inroads across the world. China is even in a position to control capital that leaves Chinese shores and redirect it to other geographies such as Vietnam or Mexico or stem the tide to other geographies such as India.
Late tonight, Trump will demonstrate this approach of punishing capital to attract capital. America will get hurt. So will the rest of the world. And India will get hurt too. It is unfortunate that while Indian diplomacy did a credible job of ensuring that the global environment was conducive to meeting Indian economic aspirations, New Delhi’s economic managers could have done better. The task of drawing capital, the task of becoming a manufacturing powerhouse, the task of securing India’s biggest export market that is America, the task of reducing dependence of India’s largest import source that is also an adversary have all suddenly become far more difficult.
In this moment of the greatest churn that modern capitalism has seen, at least since the end of the Cold War, India should relentlessly and pragmatically focus on securing its own economic interests. As the world closes down, the Indian Way may well lie in opening up.
The views are personal
