Geopolitical Compass for a Tariffed Economy

Deep transformations in international relations are rewriting the rules of global trade. India, a rising economic power, finds herself at a pivotal moment, navigating these shifts to secure its position as an indispensable component of the global supply chain. This strategic inflection point is brought into sharp focus by Dr Arpita Mukherjee, a distinguished professor at the Indian Council for Research on International Economic Relations (ICRIER), who offers a lucid and compelling perspective on India's current geopolitical challenges.

The economic and strategic relationship between the United States (US) and India is currently strained. Dr Mukherjee states, "The US is a key and significant trade partner." This deep economic connection, illustrated by a positive goods trade balance and a substantial portion of our services exports, has been complicated by the imposition of "one of the highest tariffs of 50%" on Indian goods. This punitive measure, along with the 25% Putin tax on certain products, adversely affects Indian exporters.

India's labour-intensive export sectors, where tariffs have eroded their competitive edge, are most acutely feeling the consequences of these protectionist measures. As Dr Mukherjee notes, these sectors, which include textiles, leather, gems, and agricultural products like shrimp and Basmati rice, face a higher tariff burden than their competitors. For instance, textile exporters now contend with significantly steeper duties than their counterparts in Bangladesh and Vietnam on trade with the US.

India must also expand its trade and diplomacy beyond its partners. Trade agreements with emerging markets like the EU and Australia are not just an opportunity but a necessity. While overnight supply chain transformations are impractical, Dr Mukherjee suggests that India can accelerate the process by promoting cross-border paperless trade. Joining the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) Framework Agreement on Paperless Trade, which UNESCAP champions, will promote digitisation and streamline cross-border trade processes.

India must take into account its geopolitical position when navigating this new course, rather than merely imitating other nations. Dr Mukherjee astutely observes, "We cannot be aggressive like China, and we do not control the value chain as much as they do." The presence of democracy, robust domestic lobbies, and sensitive sectors inhibits a uniform approach within India. Such an approach necessitates a slow and methodical evaluation of the landscape to allow for the development of geopolitical scenarios.