Understanding the global trade tariff war through Indian perspective – Firstpost

International trade and tariff wars shape global geopolitical discourse and practice. The impact can be visible in the context of the ongoing China-US impasse in trade relations. The nature of international trade will also affect the institutional process at both the global and regional trading frameworks. One witnesses that despite institutional frameworks to protect the interests of the Global South countries, they are at the receiving end because of the unfair trade practices of the Global North. In this context, India can lead the Global South countries and ensure an equitable global economic order.

While the Russia-Ukraine war has put global geopolitics in a fix, at the same time giving impetus to trans-Atlantic security cooperation, the tariff measures of US President Donald Trump created a new kind of fraught in the above-mentioned security architecture. When Trump imposed a 10 per cent tariff on Chinese products and started imposing the same on European products, it created a new challenge to the existing bonhomie between the United States and the European Union.

In this regard, will the Trump administration be able to carry out such measures against all the trading partners ranging from China to the European Union to Africa? This is more so when the US faces the worst form of economic recession in recent years. The global economy is also experiencing the same. The tariffs will also impact global geopolitics and may create a new challenge to supply securitisation, thus affecting economic growth. The same can be inferred from geopolitical theories that emanated in the aftermath of the 19th century, especially in the Euro-Atlantic World War.

As Jacob Viner, the famous economist, once stated, “Trade barriers are undoubtedly the major economic contribution, directly or indirectly, to international conflict, tension and war.” Similarly, the World Economic Forum underlines, “Trade and investment is increasingly seen as a zero-sum game rather than win-win, leading to growing mistrust and abandonment of the rules-based system.” In this context, there is a need for a comprehensive explanation of whether geopolitics shapes the pattern of international trade or vice versa.

Setting the Trade-Tariff War in Global Geopolitics

To get a nuanced understanding of the concept of a trade war in global geopolitics, it is necessary to have a historical understanding of the same. In this regard, two major tariff wars in late 19th century Europe shaped European geopolitics historically. It can be described as some war among the major European powers, namely, Russia and Germany, over agricultural products and France and Italy, which aggravated their mutual mistrust. The same is the case of other European countries. Similar is the case of Great Britain and Germany, which contributed to the mutual antagonism. Because of the long duration of these tariff wars, they have impacted European geopolitics. Percy Ashley succinctly captured the above-mentioned analyses in his book Modern Tariff History. Ashley, in this book, explains how trade protectionism is one major contributor to the Anglo-American War of 1812.

It is pertinent to highlight here that even in the 20th century, there are plenty of examples to locate the nature of trade war. In this context, the trade war between the United States and European countries is an apt example. The Smoot–Hawley Tariff Act of 1930 was enunciated by the United States in 1930 to protect its farmers against the backdrop of the great depression, which affected the global economies then. Even though economists urged President Herbert Hoover to veto the tariff measures, this is true. The imposition of tariffs by the US administration for over 2,000 imported agricultural products further escalated into a trade war as more than 20 countries (mostly European) imposed a similar tariff on US products. However, when Franklin D Roosevelt became President after succeeding Hoover, he repealed the Act and replaced it with the Reciprocal Trade Agreements Act of 1934.

It is not only that the tariff war only existed between the US and European countries, but it was also widely visible in Asia. Russia used its trade with Persia(Iran) to checkmate an expansionist Great Britain in the late 19th and beginning of the 20th Century. Even China faced tariff competition from England, France, Italy, Russia, and Japan during the above-mentioned period. One may recall here that Hans J Morgenthau, in his classic book Politics Among Nations ( Considered the best book on the Realist approach in International Relations), underlines the importance of Tariff war and sanctions as an important tool in conducting foreign policy. In the same book, Morgenthau further mentions that “tariffs the sole source international conflicts and reasoned that peace lay in extending free trade”.

In the aftermath of the Second World War, various scholars have argued that the pattern of trade, to a great extent, influenced Cold War geopolitics. A good instance in this regard can be inferred from the enunciation of the geopolitical doctrine of “Peaceful Co-existence” outlined by Nikita Khrushchev for Soviet-US economic engagement in the 1950s. This reflects how economic engagement can provide a substantial basis for influencing the course of international relations.

Cold War Era, Global Geopolitics and Trade and Tariff Issues

During the Cold War, polarisation occurred on the strategic and ideological front and in the global economic realms. The fraught within the global economic system in the form of ideological polarisation was aptly reflected in the writing of an influential Soviet policymaker, G. Malenkov. The ideological polarisation also influenced the formation of economic blocs in the Western economic Order led by the US and a Socialist bloc led by the Soviet Union. Incidentally, the Bretton Wood Conference of 1944 recommended the creation of an institution to regulate international trade and tariffs in the Euro-Atlantic system.

Later, under the ambit of the Marshall Plan, the European Economic Cooperation came up, which led to the formation of the Organisation of the Economic Cooperation and Development (OECD) in 1960. The emergence of the General Agreement on Tariffs and Trade (GATT) in 1947 is another important milestone in regulating trading activities at the global level.

To counter the Western influence in international trade, Stalin, in 1949, created a new organisation consisting primarily of the East European countries and the Soviet Union known as the Council of Mutual Economic Assistance (COMECON). The organisation was formed to bring out an alternative trading arrangement for the socialist bloc led by the Soviet Union.

It may be recalled here that in between the Western and Soviet trade blocs, under the initiative of the United Nations in 1964, when the United Nations Conference on Trade and Development (UNCTAD) came up. The same conference was held in Geneva. It came up basically to protect the interests of the developing countries. The mandate of the UNCTAD is to provide an institutional forum to help the Global South countries to regulate their trade relations with the Global North.

The development of these institutional mechanisms greatly shaped international trade relations during the Cold War period. In the initial years of the Cold War, the US pursued a free trade agenda in its foreign policy plank, especially with its strategic allies. Scholarly studies suggest that CIA intervention in different parts of the world facilitated the growing role of the US in global trade. Despite this the rise of Japan, Canada and England, along with pressure from domestic sectors, propelled Washington to adopt a more protectionist policy in international trade.

Studies also suggest that the United States lost its dominant position over Canada in the textile sector. The same was highlighted by President Richard Nixon in 1971. Nixon stated, “For twenty-five years, the United States has not bargained hard for a better position in the world trade…we’re going to change the rules of the game.”

What one can infer from the US position on trade during the Cold War period is to employ it as a geopolitical tool. Although it faced a backlash on tariff matters from its allies. At the same time, after withdrawing the Most Favored Nations status from the Soviet Union in 1951, the US imposed tariffs up to 100 per cent on a few Soviet products. One of the major bones of contention between the two power blocs was over trade-related issues.

As a former CIA Director, Allen Dulles stated that the objective of Soviet Trade policy was to “buy anything, trade anything and dump anything if it advances Communism or helps to destroy the influence of the West.”

However, the fall in oil prices in the international market has also put the Soviet economy in a difficult situation. This happened because of a deal between the US and Saudi Arabia, which resulted in flooding the international market with cheap oil. This, to a great extent, affected Soviet oil as prices plummeted to a significant extent. The development of international relations largely influenced the subsequent development of international trade and tariffs.

Thus, there are three inferences one can draw about the development of tariff policy as well as the nature of trade in the post-Second World War Trade and tariff policy. These are :

• The logic of Cold War geopolitics largely influenced international trade and tariff policies.

• The formation of trading blocs and the granting of the Most Favoured Nation(MFN) is intrinsically linked to the Cold War alliance pattern.

• During the Cold War, the Soviet bloc and Western alliances tried to expand their trade through geopolitical manoeuvring. The same can be observed from the fact that the Soviet Union’s presence in Cuba and the US alliance with China and countries like Yugoslavia were considered to be strategic foes.

The trading pattern and tariff geopolitics have not changed much in the post-Soviet era. In this context, there is a need to locate the trade and tariff discourse on the global geopolitical framework.

Trade and Tariff Issues and Post-Cold War Geopolitics

In post-Cold War geopolitics, one can notice a new form of geopolitical development occurred, which shaped the global trade and tariff issues to a considerable extent. The withering away of the Soviet System from global geopolitics paved the way for the development of a new world order, which emerged from what Samuel Huntington observed as the emergence of a “ uni-multipolar world order”. The demise of bloc politics has also paved the way for what many Western scholars called the victory of capitalist liberal ideology. The post-1991 era also saw the emergence of new geopolitical and geoeconomic alliances, such as the emergence of the European Union in 1994 and the inception of WTO in 1995.

Along with these two above-mentioned developments, some of the phraseology of Cold War geopolitics, which influenced the trade and tariff policy pattern, changed considerably. The fall of the Soviet system also gave rise to a new normative liberal ideology, which justified free-open trade and democracy. Though free and open trade is considered the ideal objective, it created a new hierarchy in international relations, contributing to the unequal and hierarchical world order. The unequal trading framework was a concern among the Global South countries. Another noticeable trend in the post-Cold War trading system is that economic sanctions, along with tariff wars, are influenced by geopolitical developments.

What one can witness in post-Cold War trade geopolitics is that despite the emergence of WTO, at the same time, a regionalization of world trade and the formation of regional trade blocs like NAFTA, ASEAN, APEC, etc have taken place. Thus, it can be stated that the emergence of the trading blocs fueled a new form of trade bargaining and negotiation at the global level. The same was reflected in the banana war between the European and Latin American countries. It may be recalled here that despite the support from the WTO, the European countries took a tough stand, which put this trading body in a quandary.

One of the contentious issues in WTO is “reciprocal and Non-Discriminatory” trade practices among the members. The trade dispute between Australia and Canada over salmon fish, which lasted from 1995 to 2000, can be considered a major example of conflict over the above-mentioned issue. The imposition of tariffs of up to 30 per cent on European steel by the US in March 2002 accentuated the hostility between these two prominent geopolitical actors. In response to the US move, the EU threatened to impose a tariff of up to 100 per cent on many products it imports, including textiles and steel. Similarly, the US has had a conflict with Japan, which is considered a strategic ally over tariff issues.

World Bank Economist Aditya Mattoo and Robert W Staiger outlined some important factors for this in an interesting paper titled “ Trade Wars: What do they Mean? Why are they Happening Now? What are the Costs” published in 2019. These World Bank economists using China and the US trade relations as a case study underline that “ rules-based and power-based regimes” shape the nature of bilateral trade. They argue that while rule-based trading regimes are desirable, geopolitics governs global trade and tariff issues. In this context, “reciprocal” tariffs may accentuate asymmetric power bargaining in the international system. This may create a new form of a hierarchical international system.

The above theoretical postulates provide a context for studying the nature of trade warfare between China and the US, which are at loggerheads on trade and tariff-related issues. The issue of tariffs is coming to the fore in the US and China trade relations precisely on two counts: protecting intellectual property Rights (IPR) and “transfer of technology”, as literature suggests. Theft of IPR by China, as studies suggest, hinders smooth bilateral trade between the two countries. Over the years, the US accuses China of using its 5G technology, which the former think originally belonged to the former. The US Department of Justice issued a statement in 2020 in which it indicted the Chinese by stating that “ For years, Chinese firms have broken our export laws and undermined sanctions, often using U.S. financial systems to facilitate their illegal activities”. This IP theft by China cost the US around “ 600 billion dollars” in 2017, as per the US government IP Commission report of 2017.

Along with financial loss, the US Administration claims technological theft poses a substantial National Security challenge. Since 2023, Washington has restricted its investment in China in key areas like semiconductors, quantum technology, and Artificial Intelligence(AI). Even before 2023 also, the first Trump administration, as per a study by Pablo Fajgelbaum and Amit Khandelwal titled “The Economic Impacts of the US-China Trade War” (2021), imposed increased tariffs on several Chinese products to the tune of “350 billion” US Dollars and China retaliated the same on the US products by imposing tariff worth “100 billion” US Dollars in 2019.

The aggravation of trade and tariff war during COVID-19 has also affected the supply securitisation of essential commodities, particularly medicines. This is true even though China and the US are part of the WTO. One major consequence of a trade war between the two countries is that the US started importing from other countries some of the products that it used to import from China. For instance, ASEAN countries started developing trade relations with the US, taking advantage of the US-China trade row. It is a fact that the US-China trade war has also had a domino effect. Taking advantage of the volatile trade dispute between these two major players, many East Asian countries also carried out trade wars against China. This aggravated the geopolitical situation in East Asia.

The return of Trump for the second term as President of the US has further heightened the fear that the trade war between the US and China will further aggravate. Just after assuming office, President Trump, as promised during his election campaign, initiated a move to impose additional tariffs of 10 per cent on products imported from China. Similar tariffs were imposed on Canada and Mexico to 25 per cent. The White House, in a statement, underlined that “In response to China’s intellectual property theft, forced technology transfer, and other unreasonable behavior, President Trump acted with conviction to impose tariffs on imports from China, using that leverage to reach a historic bilateral economic agreement”.

To counter this, China has also imposed additional tariffs on US products, particularly on energy, to 10 to 15 per cent. China has also brought many US firms, such as Google, under its scanner. The imposition of additional tariffs by both China and the US will have a major impact on global trade as well as geopolitics. If the US pursues restrictive trade practices by imposing high tariffs on Chinese commodities, it will put China on the back foot. This is because China will not be able to export its commodities, and in the short run, it is difficult to find new markets. The EU might take similar measures against China following the US move. This, in turn, will further stress the crisis-ridden Chinese economy. This is going to have an impact on geopolitical manoeuvring as well.

There is a concern in European countries over OBOR and the growing trade deficit with China. The trade and tariff wars between China and the US will adversely affect each other’s economy. If this tariff war continues between them, it is bound to impact global trade also. This may redraw the global geopolitical map through trade alliances and counter-alliances. Analysts also see the US’s move to impose high tariffs on Canada and Mexico from a geopolitical angle. Even the recent withdrawal by Panama from OBOR is a geopolitical move. This is going to have larger repercussions in the Latin American continent.

It has to be underlined here that the Global South has been facing a significant challenge due to the onset of a trade war between China and the US.

Global South and International Trade

There is a need to look at how the US and China trade war is going to have an impact on the Global South countries, which account for, as per the UNCTAD report of 2023 account for “ 42 per cent of world GDP, 44 per cent of merchandise exports and 65 per cent of foreign direct investment inflows”. At the same time, as per the UNCTAD Report, the growth rate of developing countries from 2013 to 23 was only 4.1 per cent, and the global growth rate for 2024-25 is 2.7 per cent. In this background, how the Global South countries face the consequences of a trade war between the US and China.

The Global South countries face the consequences of the Russia and Ukraine war and the geopolitical unrest in West Asia. All these wars have directly impacted their accessibility to energy and food. The onset of the trade wars will further complicate the accessibility process to vital finished products like solar panels, energy, semiconductors, batteries, critical minerals, and other IT-related products, which will be much costlier. This aggravates the problem for the Global South countries.

Taking advantage of the ongoing trade war, both the US and China may try to consolidate and also make an entry into the market of the Global South countries. They may adopt a carrot-and-stick approach to access the market and dump their products in the Global South countries. This will put the domestic economy of countries of the Global South under higher economic stress as it will jeopardize the domestic manufacturing sector. The local industries of the Global South countries may lose their competitiveness and simultaneously affect employment opportunities for the local people. This will make the situation more volatile for the Global South countries. Thus, Global South countries can be the new space for geopolitical contestation between the US and China.

It is a fact that both the US and China use trade as a means to further their geopolitical leverage. The same can be seen in China’s OBOR initiative, which creates a new security threat to member countries. Even European countries participating in this China-led project have expressed their concerns over the years. Recently, Brazil has also refused to join the project, which has set a setback to China’s initiative in Latin American countries. All these developments reflect a sense of disquiet towards Chinese trade overture. The same logic can also apply to the US trade and tariff practices in the Global South. Studies suggest a growing “trust deficit” between the Global South and the US.

This is because Washington lacks commitment and pragmatism in its engagement with the Global South. Over the years, this “ trust deficit” has widened, and there is a feeling in the Global South that Washington uses trade to expand its geopolitical intrusion into the Global South. Trade has been an essential component of the US foreign policy, and for this reason, Richard Rosecrance coins a phrase called “ trading state” and designates the US as the same in his book Rise of the Trading State: Commerce and Conquest in the Modern World. Most of the geopolitical theory that emanates from the US, whether it is Alfred Mahan, Nicolas J Spykman, Woodrow Wilson’s famous 14 points, George Kenan’s Containment theory or, in recent years, the work of liberal scholars like Robert Keohane, Charles Kindelberger, Joseph Nye focus on one key aspect that is how to promote international trade through geopolitical and normative isms like freedom, democracy promotion, human rights, free trade, etc.

However, these normative norms have created geopolitical jittery in global geopolitics, especially in the Global South countries. For instance, the Global South countries refuse to bow down before the normative dictum of the Global North. Even some of the countries have faced political crises due to the orchestrated colour revolution through the “ democratic promotion” agenda of the Global North. There is growing skepticism about the US Administration’s policy towards WTO, the multilateral trade body promoting international trade.

The Trump administration is proposing a new reciprocal tariff policy in the coming months contrary to the WTO one. This will give the existing trading framework a big jolt and may impact the global trading system in the long run. Thus, the likelihood impact for the Global South is that there will be a spurt in trading among themselves. According to the OECD Data 2024, the US’s trade with Africa has declined since 2002. Similarly, the African countries are also developing their trading cooperation. The formation of the African Continental Free Trade Area(ACFTA) in 2018 is an example of this move.

Another contentious issue creating a fissure between the US administration under Trump and BRICS is the question of de-dollarisation. If de-dollarisation happens, Trump has threatened to impose 100 per cent tariffs on products from BRICS countries. However, both Russia and China are trading through the Yuan. This is because of sanctions on Russia. Though BRICS members except Russia and China are not keen on moving to de-dolarisation. As discussed above, certainly international trade is largely shaped by geopolitical development. In this context, India’s perception on global trade and tariff issues needs to be studied.

India and the Global Trade Tariff War

It is necessary to underline here how India, being the voice of the Global South along with the fastest-growing economies of the world, plays an important role in shaping the trade discourse. In fact, during the Cold War period, India played a major role in protecting the interests of developing countries during the UNCTAD debate and in the Non-Aligned Movement, which, in turn, articulated an equity-based international economic order.

India also played a pivotal role in promoting North-South Dialogue as well as South-South Cooperation. In the post-1991 era, India successfully transformed its domestic economy and implemented reforms. A more pragmatic and liberalised reform resulted in faster economic growth. At the same time, there was a greater influx of foreign direct investment into India in the post-1991 era. Over the years, India has emerged as a major hub service sector which includes the information technology sector. Along with this, India is also a major exporter of minerals like agricultural products, Iron ore, Aluminum, refined Petroleum, Merchandise, Medicine, Tea, etc.

To boost exports, India, over the years, signed the FTA Agreement with ASEAN, the European Free Trade Association (EFTA), Mercosur (Argentina, Bolivia, Brazil, Paraguay and Uruguay), APTA, etc, to name a few. At the same time, India is also one of the major trading partners of the US, EU, Russia, China, etc. As per the Foreign Trade Policy announced in 2023, India plans to export goods and commodities worth around 2 trillion dollars by 2030. In this context, India seeks a more conducive international trade environment to boost its exports to the international market.

India’s contribution to the digital payment system in global trade has also been quite successful. In this context, two major digital payment initiatives in India, Digital Public Infrastructure (DPI) and Unified Payments Interface (UPI), are emerging as the most convenient payment modes. For instance, Singapore and France are now part of the UPI system.

However, the moot point that needs to be highlighted here is how the China- the US Tariff wars might impact India. Though studies suggest that tariff wars will benefit India, this is because the US will import more commodities from India. This will boost India’s economy. The same can be inferred from the statistical data from 2017- 19, when the first tariff war occurred. During this period, exports from India to the US increased substantially. However, the problem arose when President Trump outlined a new “reciprocal tariffs” policy contravening the WTO rule. If the US introduces “reciprocal tariffs”, it is going to have an impact on trade with India. Traditional exports sectors like agricultural products, iron and steel, and clothing will be the hardest hit if the US Administration imposes “reciprocal tariffs”, as studies suggest. However, a bilateral arrangement between India and the US can address the problem.

The Joint Statement issued at the end of Prime Minister Narendra Modi’s visit to the US also delved into the issue. The Joint Statement added that “ the US and India will take an integrated approach to strengthen and deepen bilateral trade across the goods and services sector, and will work towards increasing market access, reducing tariff and non-tariff barriers, and deepening supply chain integration”.

The Joint Statement has also emphasised the need to augment bilateral trade to 500 billion dollars by 2030 between both countries. The Joint Statement has also underlined, “ US-India Energy Security Partnership, including in oil, gas, and civil nuclear energy”. It may be noted that though India- the US energy cooperation is desirable, pricing may be a key issue in determining the course of energy cooperation. At a multilateral forum like BRICS, India is not actively supporting the idea of de-dollarisation, as was mooted at the Kazan Summit in October 2024.

India actively supports the idea of supply securitisation and protecting the interests of the Global South countries. Similarly, India’s trade engagement with Russia, Iran, and the European Union reflects pragmatic trade engagement. At the same time, it also consistently opposes the illegal CPEC project because “the so-called ‘China-Pakistan Economic Corridor’ violates India’s sovereignty and territorial integrity”. India also banned several Chinese apps in 2020 due to security concerns.

In a nutshell, it can be stated that global and regional geopolitical developments and security concerns shape India’s approach to global trade.

Conclusion

The foregoing analysis demonstrates that trade and tariff policies have catalyzed global geopolitics. Though institutional measures have been developed over the years to address the concern and regulate the same, they have not been effective enough. This is because dominant trading powers like the US, China or the European countries try to use their geopolitical clout to override the institutional measures to achieve their own interest. These powers’ consistent violation of WTO rules is a pointer in this direction.

The Global South countries are the major sufferers in the present trade and tariff geopolitics because their concerns have not been addressed despite adequate provisions by the WTO to protect their interests. Protecting their Indigenous knowledge system is one of the most contentious issues for the Global South countries. Because of taking advantage of the institutional lacunas, the Global North countries are manipulating the same to gain IPR on the indigenous knowledge system.

Similarly, the ongoing trade and tariff war between the US and China also poses a substantial challenge to the Global South through supply securitisation. The current war between Russia and Ukraine and in the West Asian region is also affecting the Global South in terms of access to food, energy, etc. The prolonged war in the Black Sea and Mediterranean oceanic trading routes also affect the Global South.

The heightening food crisis because of the war in these trading routes affects the movement of food grains. While “reciprocal tariffs” may suit the Global North, they do not suit the Global South countries. This is because of the historical context of the development in the Global South.

What is needed is a more equitable global trading order where the voice of the Global South matters most. One way through which the voice of the Global South is heard is by strengthening its collective voice in the global multilateral system. It is also a fact that China, despite claiming itself to be a Global South, is practising the same coercive trade practices towards the Global South countries. Hence, there is a need for a new framework for Global South, which will exclude China.

As a major player in global geopolitics and the “ Voice of the Global South”, India can play a major role in shaping global trade and tariff practices. The same can be inferred from the fact that during India’s Presidency of G20 in 2023-24, the African Union joined the G20 as a permanent member. This reflects India’s concerns for the Global South country. In this context, India can be a balancer in the global economic order.

The author teaches at the School of International Studies, JNU, New Delhi. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.