Actions have consequences, which need to be managed!

The only really serious economic and financial talk all over the World is USA President Donald Trump usage of the concept of ‘reciprocal tariffs’. In simple language, the Trump Administration seems to be saying that USA tariffs on your country exports will closely match the import tariffs that you impose on USA exports.

It is not yet clear on what basis these USA import levies will function, but the first step on imports tariff action has been taken. Of course, the reaction of the impacted countries political leadership and financial /economic commentators has been that in this Trade tariffs battle, the USA will be the loser and world trade will have a huge setback.

It is my opinion that it is not just the action that creates confusion and problems – managing the consequences of the actions and ensuring that the negative consequences are adequately controlled makes for success in actions which involve a major ‘paradigm and management shift’.

Economic and Financial history of the World in the last 6 decades post World War 2 has recorded at least 3 major events that took place in 3 separate countries at different times:

1. In the late 1960s, Chairman Mao Zedong of China propounded the concept of cultural revolution and that ‘power flows from the barrel of a gun’. The cultural revolution of Chairman Mao failed and while the country was not an open society, the world has never really understood the consequence costs in terms of famine, unemployment, negative GDP % growth. However, the hold of the Communist Party of China over China did not weaken.

2. In March 1985, Mikhail Gorbachev was elected as the General Secretary of the Communist Party of the Soviet Union (USSR – Union of the Soviet Socialist Republics). Gorbachev realized that the USSR communist party would need to have significant structural reforms. In domestic policy he introduced ‘glasnost’ (openness) and ‘perestroika’ (restructuring). However, his democratization efforts lead to dilution of the Communist Party of Soviet Union power and Russian Warsaw pact countries started exerting their independence with Russia not having the power to contain the rebellions. The Communist Party of Russia never won Presidential elections again and many Russians see Gorbachev as the cause of dilution of Russia power and today are supporters of President Putin who they believe will make Russia powerful again.

3. Prime Minister Narasimha Rao of India had to deal with the impending economic and financial crises of 1991. The reforms initiated by his government opened India to foreign investment, reformed capital markets, deregulation of domestic industry and reforming trade regime (exports and imports). However, the reforms process impacted the areas of the Central Govt but did not touch the areas of the state govts under India Constitution distribution of powers. Hence agriculture, labour, industry regulation laws remained unchanged and India did not get the full benefit of the reforms process. We are still laggards – one step forward, one step back – running faster to stay at the same point.

All the above 3 actions were mainly country specific and contained to a limited geography. The tariffs retaliation action of President Trump does not limit itself to USA but encompasses global trade and the edifice on which World trade was built and sustained.

President Trump action is not just National in context and content but International. The consequences also will not be just National (USA specific) but International. World leaders will need to be involved in containing the fallout and for arriving at new trade relations deals with the USA and also between themselves (excluding USA).

The World is once again at a Yalta Conference moment in History. At the Yalta Conference the winners of World War 2 (Russia, UK and USA) gave a direction to the way Europe would come under spheres of influence (Russia and USA / UK). Europe got split into East Europe (Russia and Warsaw pact nations) and West Europe (USA & NATO). Much water has flowed down this path and the Russia – Ukraine war has it’s trigger in Ukraine wanting to join NATO and Russia displeasure at this. The question is will World leaders come to a settlement of Trade terms which are felt to be more satisfying to all countries concerned or will we see total breakdown of world trade structures. The Action has been initiated by President Trump but the consequences will need to be managed by American, Chinese, Russian, Indian, Asian, Japanese, African, etc leadership. The World is waiting for effective Leadership.

However, Actions and managing their consequences is not restricted only to the political field. It also impacts Business, social structures (Trade Unions, NGOs, Media Groups, etc). All of them need to be aware that Actions have Consequences. The philosophy that we were not aware of what could emerge is not acceptable explanation for Leadership in any area. Actions need to be fully thought out and any unthought of consequence needs to faced and managed.

Actions don’t lead to failure. Not preparing for and managing consequences leads to Failure. ‘Reciprocal tariffs’ is an opportunity to take a relook at the Rules and Regulations impacting World Trade. This opportunity must not be wasted or tossed aside. We can come to a new improved World Trade Order where tariffs are more harmonized and political leadership must show the way forward.