New Shots Heard Around The World From America

What happens in America doesn’t stay in America. Whether it is the US Federal Reserve Chair Jerome Powell’s indication last Friday at the Jackson Hole gathering of central bankers, of a likely rate cut in September, or the Democratic Party’s nomination of Kamala Harris as its candidate in November’s election for the US president, significant developments in the US follow the example of ‘the shot heard round the world’, the opening volley that inaugurated the American Revolutionary War in 1775: they reverberate far beyond America’s borders.

The nationwide protest by doctors against the brutal rape and murder of a medical intern at a Kolkata hospital dominated the news in India last week, as it paralysed healthcare and preoccupied the Supreme Court, before being called off, for the most part, in response to a request from the highest court of the land.

A dispute between car dealers and car manufacturers over how many cars were held as inventory by the dealers – the dealers claim inventories cumulating to 74 days’ worth of sales, while manufacturers lower that figure by some 300,000 cars – point to lack of consumer enthusiasm for big-ticket purchases, although purchasing managers indices show robust expansion for both manufacturing and services.

Prime Minister Narendra Modi’s visit to Poland and Ukraine was another major event of the past week. The major outcome of the visit would appear to be a photograph of Prime Minister Modi and Ukraine President Volodymyr Zelensky locked in an embrace. New Delhi needed this public display of affection between the two leaders to address the consternation produced in western capitals by that picture of a tight hug between President Vladimir Putin of Russia and PM Modi early in July, when PM Modi had called on him in his first visit abroad for a bilateral visit since commencing his third term in office. It did not help matters that Russian missiles struck a children’s hospital in Kiev at the time of the bear hug.

At Jackson Hole, Jerome Powell said that a reduction in policy rates is warranted. “The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate. The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” Even prior to that, the minutes, released last week, of the Fed Open Markets Committee meeting over July 30-31, suggested a likely rate cut in September. Some members would have been happy to cut rates in July itself, according to the minutes.

So, US markets have rallied, convinced that the policy rate would move down by 25 basis points in September, and even more sharply, should employment numbers suggest the ongoing slowdown is moving into negative growth. Markets around the world are likely to feel the cheer this week, including in India.

Who wins the US presidential elections in November matters for the rest of the world, in multiple ways. Donald Trump, should he win, would impose tariffs on imports across the board and cut taxes, both contributing to inflation by direct price increases and by fiscal-deficit-induced excess demand. Rate hikes to combat such inflation would have adverse impacts for the global economy. The tariffs levied on imports to the US would invite retaliatory tariffs from exporting nations. A trade would impair global growth.

Trump would terminate all climate policy initiatives of the Biden administration, ending the promising carbon dioxide removal projects riding on subsidy from the Inflation Reduction Act. Trump’s climate policy can be summed up in his own words: “Drill, baby, drill!” Drill here refers not to what soldiers do to stay prepared, but to what oil companies do, to take oil out of the ground. In particular, Biden’s generous subsidies, under the Inflation Reduction Act, for carbon dioxide removal has incentivised multiple such projects. Sucking large quantities of carbon dioxide out of the atmosphere is the surest way to prevent additional emissions since 2019 cumulating to the 500 gigatonne limit estimated for containing global warming at 1.5 degrees Celsius above pre-industrial levels.

Trump’s isolationist foreign policy, further amplified by his vice-presidential nominee JD Vance, who called Britain’s government headed by Keir Stammer Islamist, runs the risk of nuclear proliferation. North Korea has joined the ranks of China and Russia as a missile power capable of reaching the American continent. If Japan and South Korea lose confidence that the US would risk a nuclear strike on New York or San Francisco to protect their own territories, they could be tempted to develop their own nuclear weapons. Both are technologically capable of developing nuclear warheads and missiles. Iran, Turkiye and Saudi Arabia could also be tempted to go nuclear. Germany might feel compelled to follow suit. This is not a development to be welcomed.

While a Trump administration is likely to be accommodative of India’s needs, a Republican majority in the House and the Senate, a likely accompaniment to a Trump victory, would increase the danger of anti-India pressure groups forcing the administration to take punitive measures against India on things like arms and oil purchases from Russia.

Kamala Harris’s nomination greatly reduces the chance of a Trump victory. She has enthused her party, and now leads Trump in opinion polls, even if only narrowly, even in the battleground states. Her name at the top of the ticket gives Democratic candidates for the House and the Senate a better chance of winning, as well. For India and for the world, a Harris presidency would be better than a Trump presidency.