‘Trump’s tariffs mark weaponisation of trade, threaten globalisation’

On April 2, 2025 United States President Donald Trump announced ‘reciprocal tariffs’ on 57 countries, with rates ranging from 11 per cent to 49 per cent. These new tariffs are scheduled to take effect on April 9. For India, the rate stands at 26 per cent, meaning that exports to the US will now face this duty. 

Several of India’s South Asian and East Asian neighbours — key manufacturing hubs — have been hit with even higher tariffs: China (104 per cent), Vietnam (46 per cent), Sri Lanka and Myanmar (44 per cent) and Thailand (36 per cent).

Global markets crashed on April 7, 2025 following Trump’s announcement and China’s response of even higher retaliatory tariffs. Before the tariffs were due to take effect, Down To Earth spoke with Amitendu Palit, senior research fellow and research lead (trade & economics) at the Institute of South Asian Studies, National University of Singapore, on the tariff’s economic impact, implications for India and the future of globalisation.

Shagun (S): What kind of economic damage and impact on global trade do you foresee in the coming days due to Trump’s reciprocal tariffs and retaliatory actions by other countries?

Amitendu Palit (AP): What is being seen is a major setback to the global rules-based system that is run by the World Trade Organization (WTO). The system abhors unilateral trade protections unless and until they are justified by very serious circumstances on the part of members. The WTO was able to bring down the cost of trading across borders through progressive reduction in tariffs and other trade facilitation measures. However, the US tariffs and retaliatory responses will undo the system.

The current US trade policy is weaponising the American market for economic and political objectives. Weaponisation of economic advantages and assets is not new. In recent years, China and Russia have also made similar attempts. But the costs are beginning to show up — not just economic, but also social and political. Tariffs will mean economic hardships not just for the US economy but for the global economy at large.

The impact of tariffs through higher prices and lower demand might eventually lead to economic contraction. The US is likely to face not only higher prices, but also lower revenues due to diversion in trade to other markets.

The plan might be to compensate consumers by supporting them with funds freed up from administrative reforms that the US government is bringing in — by cutting down the US Agency For International Development or USAID, compressing the size of the government, squeezing federal funding, cutting federal taxes and higher tariff revenues. So, that is the fiscal logic for Trump. While he is not talking about a recession, he's talking about a transition.

S: With the trade wars we’re seeing, do you think this signals the collapse of globalisation and possibly the end of the WTO, given the extreme levels of protectionism never seen before?

AP: Indeed. These moves might push back world trade rules to a time before the WTO — perhaps to the early part of the last century — when such actions were more common. Unilateral tariffs work against the most-favoured-nation principle of the WTO’s rules. The basic premise of the WTO is that you don’t resort to unilateral reduction. Tariffs can be introduced in specific situations, but they are justified through consultations, where members explain their situations, and the WTO provides them with that leverage.

But Trump is clearly not a pro-globalisation individual. What’s important to note is that he, like other leaders in the world — whether far-right or radical — may not support economic globalisation but are still politically legitimate choices in their countries. This should prompt reflection on whether economic globalisation enjoys broad political support worldwide. Why are more pro-globalisation candidates not winning elections? And what went wrong with economic globalisation?

S: India has been hit with a 26 per cent tariff. Which sectors are likely to be most affected in the country?

AP: The effect will be relative and must be assessed in comparison with tariffs on India’s main competitor exporters. Sectors like gems and jewellery and chemicals might be more affected. As of now, pharmaceuticals have been spared, which is good news for India. (After the interview was conducted, Trump on April 8 announced that he plans to impose a major tariff on pharmaceutical imports.)

S: The US is India’s top market for agricultural products. Exports like shrimp and Basmati rice could become less competitive, especially as competitors like Ecuador have been hit with lower tariffs. Do you see a broader impact on India’s agricultural sector?

AP: This also needs to be considered in the context of the trade deal India is discussing with the US and what kind of arrangements might emerge. Overall, for India, the implications are significant, as the US is India’s largest export market and second-largest trade partner. If Indian exports to the US become costlier, it’s a concern — Indian exporters may not realise the same returns as before. Export earnings decline, foreign exchange falls, the balance of payments weakens and there are broader economic consequences.

However, after reciprocal tariffs, all of this must be considered in terms of how much comparative advantage Indian exports have over their Asian and other competitors who have also been subject to tariffs.

S: What would be the best strategy for India to manage the fallout?

AP: Apart from bilateral negotiations with the US, India must remain engaged with major trade actors such as the European Union and the rest of the G7 and G20 to preserve export markets. It’s also a good opportunity to enhance competitiveness by reducing inessential tariffs on various items.