Answer

The liberal international order, built on free trade and multilateralism, faces strain as rising tariff wars reflect growing protectionism. In April 2025, the U.S. imposed a 26% tariff on Indian goods, highlighting these tensions. Such shifts compel India to recalibrate its trade policy and safeguard its strategic interests. 

Tariff wars and the crisis in global liberal order     

• Undermines Free Trade: Tariff wars contradict the WTO’s liberal trade principles, reflecting a retreat from multilateralism and cooperative trade frameworks.
  For example: The US-China trade war, marked by Trump’s 104% tariff on Chinese imports, disrupted global supply chains and undermined the WTO dispute settlement mechanism.
  
• Rise of Protectionism: Protectionist measures signal a shift from global integration to national self-interest, indicating a crisis in the liberal order’s commitment to openness.
  For example: The “Make America Great Again” policy imposed tariffs on steel and aluminium, leading to retaliatory tariffs from the EU and Canada.
  
• Erodes Global Trust: Tariff wars fuel mistrust among nations, challenging international cooperation and long-standing trade alliances crucial to the liberal order.
  For example: The US’s withdrawal from the Trans-Pacific Partnership (TPP) weakened Asia-Pacific economic cooperation and created uncertainty for smaller economies.
  
• Amplifies Inequalities: Globalisation’s unequal benefits become glaring amid tariff wars, reinforcing the narrative that liberal policies fail to protect domestic interests.
• Weakens Global Institutions: The liberal order’s core institutions like the IMF and WTO lose credibility when powerful nations bypass their frameworks.
  For example: The US blocked new appointments to the WTO’s appellate body, effectively paralysing its ability to resolve trade disputes.

Impact on India’s trade policy and strategic interests

• Shift Towards Atmanirbharta: India is increasingly focusing on self-reliance through the Atmanirbhar Bharat initiative to reduce external vulnerabilities.
  For example: India boosted domestic manufacturing in electronics and APIs post-COVID-19, aiming to cut import dependence, especially on China.
  
• Strategic Diversification: India has recalibrated its trade ties by reducing reliance on adversarial partners and seeking diversified markets.
  For example: India signed trade agreements with the UAE (CEPA 2022) and Australia (ECTA 2022), reducing dependence on China-centric supply chains.
  
• Defensive Tariff Measures: India has resorted to raising tariffs on selected goods to protect domestic industries from unfair foreign competition.
  For example: India increased import duties on electronic and steel products in response to global dumping practices, particularly by China and Vietnam.
  
• RCEP Withdrawal: India opted out of the Regional Comprehensive Economic Partnership due to fears of market flooding and trade imbalance.
  For example: India’s withdrawal from RCEP in 2019 was driven by concerns over Chinese goods overwhelming domestic markets and harming MSMEs.
  
• Push for FTAs: India has adopted a selective FTA strategy, balancing openness with national interest in key strategic sectors.
  For example: India is negotiating FTAs with the UK and EU with emphasis on services and technology sectors to enhance global competitiveness.

Way ahead

• Promote Rules-Based Order: India must uphold and push for a reformed multilateral trade system under the WTO to ensure fairness and predictability.
  
• Strengthen Domestic Capacity: Boosting innovation, R&D, and MSMEs can shield India from external shocks and reduce tariff war vulnerabilities.
  For example: The Production Linked Incentive (PLI) scheme aims to build global competitiveness in sectors like electronics, pharma, and textiles.
  
• Build Strategic Trade Alliances: India should form regional and bilateral alliances based on complementary strengths and shared democratic values.
  For example: The Quad’s Supply Chain Resilience Initiative (SCRI) aims to secure alternative trade networks with Japan and Australia, reducing overdependence on China.
  
• Promote South-South Cooperation: Engaging with other developing countries can ensure mutual benefits and collective bargaining in global trade forums.
  For example: India’s Duty-Free Tariff Preference (DFTP) scheme benefits Least Developed Countries (LDCs)
• Adapt to Tech-Driven Trade: India must prepare for digital and green economy transitions to stay competitive in evolving trade ecosystems.
  For example: India’s Digital Economy Agreement with Singapore and its leadership in the International Solar Alliance reflect future-ready strategic moves.

To navigate the turbulence of tariff wars, India must adopt a calibrated trade strategy, balancing protectionism with multilateralism. As nations retreat behind borders, India should champion rules-based global trade, diversify markets, and invest in resilient supply chains. 

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