Global Trade Turbulence and India’s Strategic Response

Global trade in 2025 faces unprecedented disruption. The US, EU, and China—once pillars of globalisation—have become its chief disruptors. Each uses trade as a geopolitical weapon. The US applies tariffs and export controls. The EU hides protectionism behind environmental rules. China leverages its manufacturing and mineral dominance to wield economic power. This volatile environment demands clear strategies from emerging economies like India.

US-China Economic Rivalry

The US and China are locked in a high-stakes economic contest. Washington restricts exports of advanced technology, especially semiconductors, to slow China’s rise. Beijing retaliates by limiting exports of rare earth minerals critical for defence and clean energy. This tit-for-tat escalates trade tensions into a potential economic cold war. The conflict disrupts global supply chains and raises uncertainty worldwide.

US Tariffs and Energy Pressure

The US uses tariffs as political tools, breaking WTO rules to pressure countries. The Liberation Day tariffs caused India’s exports to the US to drop by 37% between May and September 2025. On energy, the US pushes allies to reduce Russian crude imports and increase American oil purchases. India faces penalties for continuing cheaper Russian crude imports. However, US shale oil faces refining challenges abroad, risking global supply shortages and price spikes.

EU’s Environmental Protectionism

The EU’s Carbon Border Adjustment Mechanism (CBAM) and Deforestation Regulation (EUDR) impose import taxes under the guise of climate action. CBAM targets carbon emissions embedded in steel, aluminium, and cement imports starting 2026. India’s exports in these sectors to Europe fell by 24% in 2025. EUDR restricts imports linked to deforestation after 2020. These rules may extend to all industrial and agricultural goods, increasing trade barriers for India and others.

China’s Manufacturing Dominance

China leads global manufacturing in electronics, machinery, solar panels, batteries, electric vehicles, and chemicals. It produces 50 million vehicles annually, over half the world’s demand. Chinese exports, often subsidised, disrupt global markets and shut factories abroad. China also controls 70% of rare earth refining. Recently, Beijing required export approvals for these minerals, prompting US retaliatory tariffs. China’s industrial power is now a geopolitical lever, escalating trade conflicts.

India’s Strategic Imperatives

India must focus on three pillars – boosting domestic manufacturing, maintaining strategic autonomy, and securing supply chains. Free trade agreements are insufficient as most trade occurs outside them. India should diversify energy and trade partners and resist one-sided deals. Reducing production costs and building scale in sectors like electronics, defence, and green technology is critical. Anchor investments similar to Suzuki’s 1980s entry are needed. India faces higher production costs than China, risking a widening trade deficit if the market opens without reforms.

Building Self-Reliance Amidst VUCA

In a volatile, uncertain, complex, and ambiguous (VUCA) world, India’s strength lies in self-reliance backed by competitive manufacturing. Addressing expensive power, costly credit, and import duties on raw materials is essential. Only a robust domestic industrial base can protect India’s economic interests and enable it to navigate global trade turbulence effectively.

Questions for UPSC:

1. Critically analyse the impact of US-China trade tensions on global supply chains and emerging economies like India.
2. Explain the role of environmental regulations like the EU’s Carbon Border Adjustment Mechanism in modern trade disputes with suitable examples.
3. What are the challenges and opportunities for India in maintaining strategic autonomy in a multipolar global trade environment?
4. With suitable examples, comment on the significance of manufacturing competitiveness and self-reliance in India’s economic strategy amid global trade disruptions.

Answer Hints:

1. Critically analyse the impact of US-China trade tensions on global supply chains and emerging economies like India.

1. US export controls on advanced technology (semiconductors) aim to slow China’s technological rise.
2. China’s retaliation by restricting rare earth and critical mineral exports disrupts global supply chains.
3. Trade tensions cause uncertainty, leading to supply chain standoffs and increased costs worldwide.
4. Emerging economies like India face export declines (e.g., 37% drop in India-US exports) due to tariffs and rerouted trade flows.
5. Dependence on China for critical inputs and manufacturing exposes vulnerabilities for India and others.
6. India must diversify suppliers and strengthen domestic manufacturing to mitigate risks from US-China rivalry.

2. Explain the role of environmental regulations like the EU’s Carbon Border Adjustment Mechanism in modern trade disputes with suitable examples.

1. EU’s CBAM imposes import charges based on embedded carbon emissions, targeting steel, aluminium, cement, etc.
2. CBAM acts as a disguised protectionist tool, generating revenue without directly reducing emissions.
3. India’s exports to EU in affected sectors fell by 24% even before full CBAM implementation.
4. Deforestation Regulation (EUDR) restricts imports linked to land cleared after 2020, affecting commodities like palm oil and coffee.
5. Such environmental rules increase trade barriers, complicating market access for developing countries.
6. India must negotiate safeguards in FTAs to prevent misuse of environmental standards as protectionism.

3. What are the challenges and opportunities for India in maintaining strategic autonomy in a multipolar global trade environment?

1. Challenges include pressure from US to reduce Russian crude imports and compliance with EU’s green trade rules.
2. Dependence on China for raw materials and manufacturing inputs threatens India’s supply security.
3. Opportunities lie in diversifying energy and trade partners beyond US, EU, and China.
4. Strengthening domestic manufacturing reduces vulnerability and enhances self-reliance.
5. Resisting one-sided trade deals preserves policy space and strategic decision-making freedom.
6. Building scale in key sectors like electronics, defence, and green tech can position India as a global supply chain hub.

4. With suitable examples, comment on the significance of manufacturing competitiveness and self-reliance in India’s economic strategy amid global trade disruptions.

1. Manufacturing competitiveness lowers costs vs. China, addressing India’s current 25% higher production costs.
2. Self-reliance reduces dependence on volatile global supply chains and geopolitical risks.
3. Historical example – Suzuki’s entry transformed India’s auto sector by building scale and global linkages.
4. Current example – Apple’s investments in India boost electronics manufacturing and exports.
5. Anchor investments in defence and green technology can create new global supply chains.
6. Improving infrastructure, credit availability, and reducing import duties are critical to competitiveness.