Global trade is entering its most turbulent phase since the creation of the WTO. The US, the EU and China — once the engines of globalisation — are now its biggest disruptors. The US and EU use access to their massive markets as a pressure tool. China, meanwhile is using its dominance over production, supply chains, and critical minerals to keep other economies dependent.
The US and China are locked in a fierce contest of economic power. Washington is tightening controls on exports of advanced technology — especially semiconductors and chipmaking tools — to slow China’s rise. Beijing has struck back by curbing exports of rare earths and critical minerals vital for defence, electronics, and clean energy. This tit-for-tat has turned trade and technology into weapons, pushing the world toward a prolonged supply chain standoff that may soon evolve into a full-blown economic cold war.
In this volatile, uncertain, complex, and ambiguous (VUCA) world, India must chart a clear strategy to protect its economic interests and seize new opportunities.
The US, once the champion of free trade, is now undermining the system it created. The “Liberation Day” tariffs announced by President Donald Trump on April 2 — added on top of earlier duties — broke WTO rules and turned tariffs into a weapon for political bargaining. Because tariffs target specific countries, companies are rerouting shipments through low-tariff markets instead of buying from the most efficient suppliers. India’s exports to the US in September are 37 per cent less than in May, a direct consequence of tariffs.
Crude oil is another major issue. The US is pressuring allies to shift from Russian to US supplies — the EU alone has pledged $250 billion a year to buy American energy, with Japan and the UK making separate commitments. The US has penalised India for purchasing cheaper Russian crude. However, the US is still a net oil importer, running a $60 billion deficit in 2024, and much of its light shale crude cannot be refined abroad without costly upgrades. By forcing global buyers toward limited US supplies, Washington risks creating artificial shortages, inflating prices, and destabilising energy markets. India, now under pressure to scale back Russian imports, must tread carefully.
While Washington uses tariffs to achieve its geoeconomic goals, Europe hides behind environmental rules. The EU’s measures — such as the Carbon Border Adjustment Mechanism (CBAM) and the Deforestation Regulation (EUDR) — are import tax collection tools rather than genuine climate solutions.
Under CBAM, the EU will start charging importers for the embedded carbon in steel, aluminium, cement, and other goods from January 2026, generating billions in new income for Brussels without any direct environmental benefit. Even before full implementation, and during the CBAM’s current “reporting-only” phase, India’s steel and aluminium exports to Europe fell 24 per cent in FY 2025 over the previous year. The fall will be steep once the tax kicks in in January.
Similarly, the Deforestation Regulation restricts imports of coffee, leather, palm oil, and wood products unless exporters prove that goods weren’t sourced from land deforested after 2020. Pain will increase as the EU plans to extend CBAM and EUDR to all industrial and agricultural imports within the next decade. New Delhi must insist on clear safeguards as it negotiates its FTA with the EU.
China deserves credit for building the world’s most powerful manufacturing base. It now dominates electronics, machinery, solar panels, lithium-ion batteries, electric vehicles, chemicals, and consumer goods. However, its subsidised products through aggressive exports have flooded global markets, shutting factories in other countries and distorting trade.
The auto sector shows the scale of China’s dominance: It can produce 50 million vehicles a year — enough to meet 55 per cent of global demand — compared with just 10 million in the US. This scale threatens to close auto plants around the world. The pattern is familiar: Solar cells, APIs, electronic components, and EVs have all seen similar disruptions. Hundreds of solar firms in the US and EU have already shut down, and India faces the same pressure across sectors.
China’s grip also extends to raw materials. It refines about 70 per cent of the world’s rare earths, essential for defence, electronics, and clean energy. On October 9, Beijing weaponised this control by requiring export approvals for these materials, prompting Washington to retaliate with 100 per cent tariffs on Chinese goods the next day.
As China tightens its grip on materials and manufacturing — and starts using them for political leverage — global tensions are rising, creating a cycle of trade conflict that could hurt China as much as everyone else.
As the US weaponises tariffs and energy policy, the EU hides protectionism behind green regulations, and China turns its industrial dominance into geopolitical leverage, India’s approach must rest on three pillars: Strengthening domestic manufacturing, safeguarding strategic autonomy and securing supply chains.
Free trade agreements alone won’t solve the problem — over 80 per cent of world trade already happens outside them. New Delhi should diversify energy and trade partners, resist one-sided deals, and protect critical sectors. Equally, India must lower production costs, build scale in key industries, and assert its rules regarding digital and environmental standards.
Just as Suzuki’s entry transformed India’s auto sector in the 1980s, and Apple is doing for smartphones now, the country needs similar anchor investments in electronics, defence, and green technology to build global supply chains. In a world defined by power-based trade, India’s strength will come not from alignment but from self-reliance backed by manufacturing competitiveness.
Indian producers face costs up to 25 per cent higher than Chinese firms due to expensive power, costly credit, and import duties on raw materials. Opening the market further to industrial giants like China without fixing these issues would only widen India’s $100 billion trade deficit with Beijing.
Only a strong domestic base will secure India’s place in today’s VUCA world.
The writer is founder, Global Trade Research Initiative
