Tariffs and tectonic shifts: Rethinking trade in a fragmented world

The global trade order is being reshaped by politics, with the US-China tariff war at its center. Drawing on insights from Dr. Arpita Mukherjee of ICRIER, this column explores how tariffs have backfired on their architects, and created new opportunities for countries like India—if they can invest in long-term reform and manufacturing resilience.

 

Trade has long been viewed as a stabilizing force in international relations—built on mutual benefit, economic logic, and interdependence. But today, those foundations are being tested. With economic nationalism on the rise and geopolitical fault lines widening, global trade is increasingly shaped by strategic calculations rather than just comparative advantage. Understanding the impact of these shifts requires going beyond headlines—and that’s where voices like Dr. Arpita Mukherjee’s become especially important.

In recent years, global trade has taken on a new character—more political, more fragmented, and often, more unpredictable. One of the clearest examples has been the ongoing tariff war between the United States and China, a move that was supposed to rebalance trade but has instead reshaped global supply chains in unexpected ways.

Dr. Arpita Mukherjee, Professor at ICRIER, has closely followed this shift. She points out that the US expected tariffs to bring jobs back home and reduce its trade deficit with countries like China. However, those goals may  remain unmet, if tariffs increase the cost on raw materials and intermediate goods. Developing a manufacturing base requires long-term planning.  

China didn’t just react to US tariffs by imposing a higher tariff, it did so after securing its position in global trade and manufacturing through a long-term strategy. It began by redirecting trade flows, investing in new markets, and deepening ties with countries across Asia, Africa, and Latin America. In contrast to the US approach, China focused on strengthening its global connections and controlling critical supplies even as others were putting up barriers.

What’s striking is the ripple effect of tariffs. In theory, they’re meant to hurt the exporting country. But in practice, they often end up affecting the country imposing them just as much—if not more. Dr. Mukherjee compares tariffs to a boomerang: they often rebound and impact domestic consumers and industries. Rather than moving production back to the US from China, many companies may opt to shift operations to countries like Vietnam, India, or Mexico to manage costs.

In this context, India’s role becomes all the more important. As global supply chains adjust, India has the chance to emerge as a reliable alternative. But Dr. Mukherjee also notes that India still heavily relies on China for inputs in sectors such as electronics and pharmaceuticals. Decoupling from China isn’t a short-term task; it requires a clear, consistent policy roadmap and significant investment in building domestic manufacturing capabilities.

Meanwhile, China has proactively offered duty-free access to several Least Developed Countries (LDCs), and its BRI and other investments have helped it maintain influence across developing economies. This is not just a trade move—it’s a long-term strategic play.

Tariff wars rarely result in the clean victories that leaders often promise. They create uncertainty, raise costs, and disrupt trade patterns built over decades. But within that disruption lies opportunity—especially for countries like India—if they’re willing to invest in the hard work of reform and capacity-building.

“The US-China trade war has changed the way the world thinks about trade. And it’s made space for middle powers to step up,” she concludes.

As nations recalibrate their trade strategies, what comes next will depend not just on policy choices, but on the ability to think several steps ahead. Countries that can combine scale with smart, long-term planning will be better positioned to navigate the turbulence—and maybe even reshape the rules of the game.