The 2025 trade shock has altered the global economic order. With Washington using tariffs as a security tool, multilateral trade rules have weakened, supply chains have faced fresh uncertainty, and India has had to widen its economic options while preserving strategic autonomy.
America First as a trade-security doctrine
Trump’s second term treated trade policy as an instrument of national security rather than market access. The core claim was simple: American prosperity, technological edge and military power required tighter federal control over imports, tariffs and supply chains. This marked a break from the post-1945 idea that trade should be governed by rules, negotiations and non-discrimination. It also weakened the distinction between economic policy and strategic policy. Trade decisions became part of a broader contest over industrial capacity, technology control and geopolitical influence.
From multilateralism to unilateral tariffs
The US withdrawal from the Paris Agreement and the World Health Organization showed retreat from collective action in climate and health. The more immediate global shock came from the America First Trade Policy, which used tariffs as the main bargaining tool. In April, steep reciprocal tariffs were announced on 57 countries, with enforcement deferred to extract concessions. This created policy uncertainty for exporters, importers and investors. It also raised transaction costs across sectors dependent on cross-border sourcing.
Impact on global value chains
For three decades, global value chains had allowed firms to split production across countries based on cost, scale and specialisation. The tariff wall disrupted that logic. Firms faced higher costs, delays and greater risk in sourcing from multiple jurisdictions. The new policy encouraged reshoring within the US and reduced the appeal of deeply integrated supply chains. It also pushed firms to reassess inventory, supplier concentration and market dependence. For export-dependent economies in Asia and Europe, the shock was not only commercial but strategic.
| Issue | Earlier logic | America First response |
|---|---|---|
| Trade policy | Negotiated rules and predictable tariffs | Executive control and tariff-based pressure |
| Supply chains | Cross-border efficiency and fragmentation | Reshoring and reduced external dependence |
| Global governance | GATT/WTO consensus | Unilateral bargaining and selective deals |
| Strategic approach | Interdependence | Economic nationalism with security framing |
Break from friendshoring and the Biden approach
The shift was sharper than the Biden administration’s approach. Biden had encouraged friendshoring and selective supply-chain resilience through arrangements such as the Indo-Pacific Economic Framework for Prosperity. That model still accepted global value chains, but sought to de-risk them. Trump’s approach went further. It did not merely diversify suppliers. It raised the cost of openness itself. In effect, it moved from managed interdependence to an economic posture that bordered on isolationism.
Crisis for rule-based multilateral trade
For nearly eight decades, trade rules evolved through consensus under GATT and later the WTO. That framework depended on negotiated discipline, equal treatment and predictable dispute settlement. Unilateral tariffs weaken each of these pillars. When a major economy concentrates trade power in the executive and bypasses rule-based negotiation, the credibility of the system falls. The WTO has therefore entered an existential crisis. Its authority is affected not only by enforcement gaps, but by the decline of trust in the idea that common rules can restrain unilateral power.
India and China: refusal to yield under pressure
Of the 57 countries targeted, the US closed deals with only 17. China and India did not concede on core positions. China responded with credible threats of retaliation. India absorbed tariffs as high as 50 per cent without altering its basic stance. This response showed that large economies can resist pressure when domestic political costs of compromise are high and strategic space is available. It also showed that tariff coercion does not always produce alignment; it can produce counter-alignment.
India-China thaw under external pressure
The tariff shock contributed to an unintended geopolitical shift. In August 2025, Narendra Modi and Xi Jinping met in Tianjin, leading to a cautious thaw after years of tension. By year-end, direct flights resumed and visa rules eased. The economic backdrop mattered. India’s exports to China had fallen to just over $14 billion in 2024–25, the lowest since 2017–18, making China India’s fifth-largest export destination. After the thaw, exports rose sharply, with more than 90 per cent growth in November 2025 and over 33 per cent growth in the first eight months of the financial year.
Trade exposure shifting away from the US market
Both India and China reduced dependence on the US market during the same period. China’s export share to the US fell from nearly 22 per cent in 2017 to around 10 per cent by November 2025. India’s dependence also declined, from almost 23 per cent to about 20 per cent. This does not mean decoupling from the US. It indicates a search for hedging. Major economies are trying to reduce single-market exposure while preserving access to key demand centres.
India’s strategic autonomy in a fractured order
For India, the trade shock revived an old objective in a new setting: strategic autonomy. The idea is not non-engagement with major powers. It is freedom to choose partners, preserve policy space and avoid overdependence on any single economy. India responded by accelerating diversification. A series of free trade agreements concluded in 2025 and renewed engagement with the Eurasian Economic Union during Andrey Slepnev’s visit to New Delhi showed a conscious effort to widen economic options.
Implications for India’s external economic strategy
- Reduce dependence on one market by broadening export destinations.
- Build resilience in trade, energy and technology supply chains.
- Use FTAs as tools of market access and risk diversification.
- Keep room for engagement with both the US and China without lock-in.
- Align trade policy with industrial policy, logistics and manufacturing capacity.
What the shock means for global governance
The current phase of trade politics has three clear implications. First, tariff-based coercion has become a tool of statecraft. Second, multilateral institutions face declining authority when major powers bypass them. Third, middle powers are shifting towards hedging, diversification and selective regionalism. For a stable trade order, reforms must address dispute settlement, tariff discipline and transparency. Regional trade agreements can help if they complement rather than replace global rules. The larger task is to restore confidence that international trade will be governed by predictable rules, not by unilateral pressure.
Model Questions
- Analyse the America First Trade Policy of the second Trump administration as a national security doctrine and its implications for rule-based multilateralism and global value chains. [GS-III: Economic Development] The policy redefined trade as a security instrument, using tariffs to protect industrial capacity, technology and military power. It weakened GATT/WTO-based rule-making and replaced negotiated discipline with executive-driven coercion. The result was higher transaction costs, uncertainty and pressure on global value chains. It also encouraged reshoring in the US and reduced confidence in multilateral trade governance, pushing states towards hedging and supply-chain diversification.
- Examine how India and China responded to the 2025 global trade shock and explain the unintended geopolitical consequences of their response. [GS-II: International Relations] India and China resisted tariff pressure instead of conceding to it. China threatened retaliation, while India absorbed high tariffs without altering core positions. This hard line helped trigger a cautious India-China thaw, including the Tianjin meeting, resumed flights and easier visas. The trade shock also reduced dependence on the US market for both countries, showing how external pressure can produce limited normalisation and strategic recalibration.
- In the context of the America First policy and global economic turbulence, assess India’s pursuit of strategic autonomy through trade diversification. [GS-II: International Relations] Strategic autonomy now means preserving policy space in a fragmented order. India has responded by concluding FTAs, deepening engagement with the Eurasian Economic Union and widening external partnerships. The aim is not decoupling from the US, but reducing exposure to shocks from any one market. This approach supports resilience in trade, technology and supply chains while keeping India’s options open across competing power centres.
- Discuss the crisis faced by the WTO in the era of unilateral tariffs and suggest measures for a more stable international trade order. [GS-III: Economic Development] Unilateral tariffs weaken the WTO by bypassing consensus, eroding dispute-settlement credibility and normalising coercive bargaining. The crisis stems from executive control over trade, selective deals and declining trust in common rules. A stable order needs WTO reform, tariff discipline, restored transparency and stronger dispute settlement. Regional trade agreements can complement global rules, but they cannot replace a rules-based multilateral framework for predictable trade.