Is Donald Trump's great tariff war building a trade wall? Economic shifts, impact on India & more decoded
The impact of Trump 2.0's tariff policies on global trade, economic stability, manufacturing shifts, and geopolitical relations, with a focus on US-China tensions and India’s trade opportunities.
FollowBy Salonie Chawla
Since January 20, 2025, when Donald Trump was inaugurated into White House as the 47th President of the United States, the world has been aggressively hearing the word ‘Tariffs’ across political, trade and diplomatic corridors worldwide. Trump’s second term has benchmarked tariff as a central theme in the US economic vision with worldwide consequences. By the end of 2025, most of the nations with sizeable economic weightage would have a different equilibrium with the US, leading to a new trade and strategic equation geopolitically.
Following on his high pitch Republican election campaign, Donald Trump put his tariff vehicle in the top gear to Make America Great Again (MAGA) immediately after taking charge of the Oval Office. Mostly undeterred, Trump wants the Americans, and the rest of the world believe that his tariff weapon against the major economies could boost US manufacturing again, scale local production, create more jobs besides protecting the present employment. He would also be able to raise revenue for delivering on his election promise to cut corporate taxes. He wants to introduce reciprocal tariffs to restore America’s trade balance which presently is in huge deficit. The US imported USD 1.2 trillion more than it exported in 2024.
Initially, the Trump administration announced tariffs on traditional trade allies— Mexico and Canada along with high decibel levies on China, on key imports. However, such policy actions will have unintended consequences, as tariffs affect the entire supply chain, inevitably increasing costs for goods and consumers, most severely in the US.
Impact on India
For India, Trump's tariff policies may present challenges for now but could turn out to be opportunities in the medium to long term. As the US increases tariffs on Chinese goods, Indian exporters might find new opportunities to fill gaps in the American market, particularly in sectors like textiles, pharmaceuticals, and IT services. The merchandise trade between India and the US may take advantage of widening rift with China and rise substantially from the present USD 130 billion.
However, if Trump imposes higher tariffs on Indian exports—especially in industries like steel, aluminium, electronics and auto parts—it could negatively impact trade equations. As India’s bilateral trade is on our top of the table, our policy makers will need to engage in strategic negotiations to secure favourable trade terms, possibly leveraging India’s role as a key US ally in the Indo-Pacific region. However, higher global inflation due to tariffs could affect India's economy, leading to increased import costs for key commodities, thus influencing domestic pricing and economic stability.
Strategic Shifts in Manufacturing and Investments
Trump’s tariffs are accelerating a shift in global manufacturing and investment patterns. Countries including India and those in Europe which previously relied heavily on exports to the US may now reconsider their strategies both for trade, supply chain and investment. Some may focus on strengthening domestic production capacities, while others may look to diversify their trade relationships, scaling regional markets.
Multinational corporations are also adjusting investment decisions, with some relocating production facilities to tariff-free jurisdictions to maintain cost efficiency. More importantly, the MNCs will have to examine Free Trade Agreements between different major economies and blocs of the world and realign their supply chain sources and assembly locations favourable to them. Supply chain dynamics have to be matched with the major markets of the world as well.
Understanding the Implications of Tariff Measures by Trump 2.0
Tariffs are taxes charged on goods imported from other countries. Typically, tariffs are a percentage of a product's value, and the line of thinking around such a measure is to strike a balance between opening the domestic market without harming interest of the home-grown companies or even global firms which have committed investment in our country.
Traditionally, the US has typically charged lower tariffs on goods than other countries. Governments globally now face the challenge of mitigating inflationary pressures caused by higher import prices. This particularly affects developing economies reliant on the US imports or exports. Supply chains, already strained by post-pandemic recovery efforts, are experiencing additional disruptions as companies seek alternative suppliers to circumvent higher costs.
Beyond economic consequences, Trump’s tariff policies have significant geopolitical ramifications. By targeting China with renewed tariffs, the US is intensifying economic tensions that could escalate into broader trade conflicts. Policymakers in the European Union, India, and Southeast Asia have been navigating these fault zones carefully by balancing their trade relationships with both Washington and Beijing and exploring bilateral trade agreements with the US. The potential for retaliatory tariffs from affected countries could lead to a cycle of trade wars, further straining diplomatic relations and global economic stability.
(Salonie Chawla is a senior public policy professional. Can be reached at salonie.c@gmail.com)
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