Global Trade at a Crossroads

US President Donald Trump imposed 25 per cent tariffs on all goods importing from India, along with an additional tariff of 25 per cent if India continues to import energy and military equipment from Russia. Similarly, tariffs ranging from 15 per cent to 20 per cent were imposed on Vietnam, Indonesia, the Philippines, Pakistan, and the European Union, while in return, these countries granted zero-tariff access for their imports from the US. The stated justification for these measures is America’s trade deficit with these nations. But ironically, the US has imposed a 50 per cent tariff on Brazil, despite maintaining a trade surplus with the country. In 2024, these countries have a total trade of $83.9 billion, US imports worth $38.5 billion, and exports worth $45.4 billion. Likewise, the US has gained access to Japan’s rice market, which was historically protected by the Japanese government. 

Such actions highlight a flawed and protectionist trade stance, where the US penalises both trade deficit and surplus countries.These decisions appear to be driven more by political motives than economic logic, potentially damaging long-standing trade relationships and eroding global trust in US trade policy. In the long run, such high tariff rates will inevitably increase costs for US consumers by making imported goods more expensive, thereby fueling inflation, reducing purchasing power, and slowing economic growth. At the same time, it will undermine the export potential of trading partners (worsening terms of trade), leading to a lose-lose situation for the country that is imposing the tariff and the other one who is bearing the brunt, as it distorts trade relations, strains diplomatic partnerships, and threatens global economic stability. 

In response to such unilateral and unpredictable tariff policies, affected countries may adopt a range of strategic measures to protect their economic interests. Countries are seeking alternative strategic trade partners. For example, Indian has already signed a Free Trade Agreement (FTA) with the UK, which has been considered as the UK’s biggest trade deal post-Brexit. As per this agreement, 99 per cent of Indian exports to the UK will enjoy zero tariff, while 90% of UK exports to India will receive preferential access, with 64 per cent of them benefiting from immediate duty cuts. This deal is expected to significantly benefit India’s labour-intensive sectors, like textiles, gems & jewellery, and fisheries, by increasing their market access. It will boost production capacity and employment with a multiplier effect in both countries. India is also actively strengthening its trade ties with Australia and the European Union.

With Australia, the India-Australia Economic Cooperation and Trade Agreement (ECTA), which came into effect on December 29, 2022, was a landmark deal, and it will significantly improve bilateral trade. As of now, over 85 per cent of Australian goods exports to India are tariff-free, set to rise to 90% by January 1, 2026. Similarly, 96 per cent of Indian exports to Australia is duty-free and set to increase to 100% by the same date. In parallel, India is also engaged with the European Union to finalise a Free Trade Agreement (FTA). Both sides have made substantial progress, and the deal is expected to be concluded by the end of 2025; it will potentially unlock major economic gains through tariff reductions and improved regulatory cooperation. India is also actively expanding its network with other key partners. 

Second, the sharp swing in U.S. tariff rates on China, which escalated from 34 per cent to 84 per cent and then peaked at 145 per cent before being slashed to 10 per cent and now set to rise again to 30% in November 2025, highlights how China’s economic and technological strength has limited Washington’s ability to sustain such high tariffs. In contrast, countries like India have been subjected to harsher tariff threats, exposing their relative vulnerability. This underlines a crucial lesson for emerging economies that long-term resilience in global trade is not built merely on tariff negotiations but on strong fundamentals.

To stand against external pressure, a nation must invest heavily in technological advancement, innovation, and industrial upgrading, which enhance competitiveness, reduce dependency and strengthen its bargaining power in global trade disputes. In India, initiative such as the Production Linked Incentive (PLI) Scheme is a step in this direction, aimed at strengthening domestic manufacturing and reducing reliance on imports. However, its impact can be further boosted by ensuring wider participation of small and medium enterprises (SMEs) and expanding coverage to sunrise sectors such as green technology and semiconductors.

Third, countries can focus on expanding their domestic markets to cushion against external tariff shocks and trade disruptions. China, for instance, adopted this strategy when its export demand weakened due to high tariff rates, offering subsidies that enabled higher demand in domestic markets. Alongside this, a renewed emphasis on swadeshi or locally produced goods can further fortify the domestic economy, create jobs and reduce reliance on volatile global markets. Moreover, every trade crisis presents an opportunity for course correction. Economies that are less dependent on exports and have a strong domestic base are better positioned to withstand external headwinds. This moment, therefore, can be seen as a chance for countries to deepen domestic demand, strengthen resilience, and empower trade negotiations to secure favourable deals or walk away when the terms are not in their best interest.

Further, this escalating U.S. tariff war presents a historic opportunity for BRICS to act as a counterweight to American trade dominance. With the U.S. imposing punitive tariffs such as 50 per cent on Indian goods and 15–20 per cent on other partners, BRICS can leverage its collective economic heft to construct resilient alternatives. Beyond expanding intra-BRICS trade through preferential tariff regimes and diversified supply chains, the grouping can also play a transformative role in reducing dependency on the U.S. dollar in trade settlements. In fact, de-dollarisation efforts are already underway: India and Russia have experimented with rupee-rouble trade for oil and defence supplies; China has been promoting yuan-based settlements through its Cross-Border Interbank Payment System (CIPS); and Brazil recently signed agreements to settle some of its trade with China directly in yuan.

South Africa, too, has explored local currency invoicing in regional trade. By promoting the use of local currencies or even a future BRICS digital currency, the bloc could shield members from dollar volatility and unilateral sanctions. India, with its growing FTAs with the UK, Australia, and the EU, can synergise these efforts by encouraging wider acceptance of rupee settlements, complementing Russia’s and China’s push for non-dollar trade. Joint investment funds in green technology, semiconductors, and logistics, backed by local-currency financing, would further enhance competitiveness. Thus, BRICS has the potential not only to counter U.S. tariff protectionism but also to reshape global trade architecture toward a multipolar, stable, and equitable order.

The contrast in trade policies of the US and other nations could shift global trade towards barrier-free trade and act as a catalyst for new regional trade blocs, as countries continue to seek more stable and mutually beneficial trade environments. While the US aspires to expand its exports globally, it needs to understand that its products are not value for money compared to goods from BRICS and other developing countries that benefit from lower production costs. In the long run, no country can endure the economic strain of unilateral tariffs; they may respond with retaliatory measures, as seen in the cases of China and Canada, or realign with alternative trade partners to safeguard their economic interests. Such shifts would not only undermine the US trade influence but also accelerate the transition toward more diversified, resilient, and regionally integrated trade networks.