12

Jan

From Tariffs to Trade Power: India’s 8% Growth Test in a Fractured World

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The global economic order is being rewritten at speed. Wars in Europe and West Asia, sharpening US–China rivalry, the return of tariffs, and the weakening of multilateral institutions have transformed trade from a rule-based system into an arena of power politics. Market access is now shaped as much by security and influence as by efficiency and growth. For India, this new reality presents a complex mix of strategic risk and opportunity.

For nearly three decades, global trade was anchored in gradual liberalisation under the World Trade Organisation, with major economies tolerating asymmetries in the name of development. That consensus has collapsed. Protectionism and economic nationalism have returned to the centre stage, and globalisation is increasingly viewed with suspicion. The paralysis of the WTO’s dispute settlement system and the rise of unilateral measures have replaced predictable rules with selective bargaining and economic coercion.

This shift is starkly visible in the revival of tariffs as tools of domestic politics and strategic signalling. The Trump administration shattered the assumption that advanced economies would indefinitely tolerate trade imbalances. Tariffs were openly justified in the name of jobs, factories, and national security. Crucially, this approach did not end with Trump. It has become embedded in Western trade policy, alongside export controls, industrial subsidies, and investment screening driven by geopolitical considerations.

Trade policy today is inseparable from geopolitics. “Friend-shoring,” selective decoupling, and security-driven supply chains have replaced the principle of non-discrimination. For countries like India, this means market access can no longer be taken for granted; it is conditional, reversible, and increasingly politicised.

The article argues that the global trading system has shifted from rule-based multilateralism to power-driven geopolitics, marked by wars, US–China rivalry, tariffs, and the weakening of the WTO. Trade is now shaped by security concerns, protectionism, and economic coercion, making market access uncertain and politicised.
Monday Musing
By Shivaji Sarkar
For India, this creates both risks and opportunities. While India’s economy has moved toward high-value exports in services and manufacturing and is deeply integrated with the US and EU, its trade policy remains cautious and defensive. To sustain 8 per cent plus growth and strengthen its global position, India must diversify partners, reduce vulnerability to sanctions, and adopt a more strategic, outward-looking trade policy. BRICS can serve as a hedge, but not a substitute for global integration.

India’s growth of around 7.4 per cent in the past year is commendable, especially against a slowing global economy. But sustaining growth above 8 per cent is essential if India is to generate jobs at scale, absorb its demographic dividend, and consolidate its geopolitical standing. This will require not only domestic reforms but also a coherent external trade strategy. High taxation, repeated hikes in rail fares, and revenue-driven duties may help reduce fiscal deficits, but they also add to inflationary pressures and strain the rupee. Growth of the required scale cannot be achieved behind protective walls.

Quietly, India’s trade profile has already outgrown its traditional policy mindset. While trade still accounts for a modest share of GDP, its composition has shifted decisively toward higher value. India is no longer merely a low-end exporter. Globally competitive services in IT, finance, design, and R&D are complemented by rising exports of pharmaceuticals, engineering goods, chemicals, and electronics components. Indian firms—from Tata and Mahindra to Infosys, Wipro, HCL, and Airtel—operate across continents, alongside large public-sector Maharatnas. The United States and the European Union remain India’s largest markets, underscoring deep integration with advanced economies.

Yet India’s trade policy often remains defensive, shaped by an earlier era when sheltering domestic industry took precedence over global integration. This stance was sustainable when the multilateral system functioned and special treatment for developing countries provided policy space. That world has ended. With multilateral negotiations stalled, trade has shifted toward reciprocal bilateral and regional agreements—an arena where India has been cautious, signing relatively few comprehensive free trade agreements and often struggling to secure favourable terms.

The weaponisation of trade and finance offers a sobering lesson. Venezuela stands as an extreme example of how sanctions, trade isolation, and dependence on a narrow export base can cripple an economy. Its experience shows that access to markets, payment systems, and investment flows can be cut off with devastating speed when geopolitics turns hostile. For India, the message is unmistakable: diversification of trade partners, supply chains, and financial channels is no longer optional. It is strategic insurance.

It is in this context that BRICS has regained prominence. Once a loose forum of emerging economies, it is increasingly viewed as a hedge against Western protectionism and sanctions diplomacy. Expansion of membership, development finance initiatives, and experiments with local-currency trade reflect a shared desire to reduce vulnerability to unilateral economic pressure. For India, BRICS can help diversify partnerships, secure energy and critical commodities, and provide diplomatic leverage.

But BRICS is not a haven. China’s overwhelming economic weight, limited trade complementarities among members, and divergent political systems constrain the bloc’s ability to substitute for access to US and European markets. India cannot replace integration with advanced economies by relying on BRICS alone. At best, it is a balancing instrument, not a destination.

Against this backdrop, India faces three broad trade strategies. A “Trade Zero” approach would prioritise the domestic market, using trade mainly to manage surpluses while shielding producers. It may reduce political risk but would deliver modest growth and risk marginalising India in a world that increasingly demands reciprocity. A “Diet Trade” path would deepen engagement with selected partners in high-value sectors while protecting sensitive industries. This could yield incremental gains but may fall short of India’s ambition to become a major manufacturing and services hub.

The most ambitious option is “Trade Regular”: positioning India as a central node in global value chains through deeper integration, upgraded agreements, and domestic reforms that raise competitiveness. This route demands higher standards, openness, and the willingness to negotiate reciprocal access. But it also offers the greatest rewards—in markets, technology, capital, and strategic influence.

In reality, India is already moving in this direction. Its firms are global, its services exports depend on open markets, and its growth aspirations require access to external demand, advanced technology, and investment. What lags behind is policy alignment. Short-term defensive comfort may shield vulnerable sectors, but it weakens long-term competitiveness and bargaining power.

India today stands at an inflection point. The world economy is more unstable, more transactional, and more power-driven than at any time in recent decades. Yet it is also more open to new manufacturing hubs and trusted partners as companies diversify away from concentrated supply chains. India has the scale, skills, and strategic relevance to fill that space. To do so, it needs a trade policy that reflects its economic maturity and geopolitical weight.

In an era where tariffs punish complacency, sanctions isolate the unprepared, and groupings like BRICS offer only partial shelter, India must move from hesitation to strategy. Trade is no longer merely about lowering duties or signing agreements. It is an instrument of national power. To sustain 8 per cent growth and secure its place in a fragmented world, India must learn to wield that instrument with clarity, confidence, and purpose.

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