When Uncle Sam Raises The Drawbridge: India Must Stop Waving From The Moat

In most Indian households, when the power goes out, the first reaction isn’t to check the fuse or fire up the backup inverter. No, it’s to peer out the window and squint at the neighbours’ houses. If their lights are out too, there’s a collective sigh of relief—at least we’re all in the dark together. But if the neighbours’ fans are whirring and TVs blaring, that’s when the panic begins.

It looks as if we have brought this same misplaced instinct to trade policy. The moment tariffs were slapped on Indian goods, the first reaction in many circles wasn’t indignation or recalibration; it was to point out, with almost comic consolation, that the tariffs on other countries are much higher. As if getting a lighter slap somehow makes the slap itself strategic praise. This societal reflex needs rewiring. Global trade isn’t a shared power outage. It’s a race where the last thing you want is to be comforted by how much worse your neighbour is limping.

In global diplomacy, timing is never coincidental. The United States’ decision to impose a 26 per cent tariff on select Indian imports, announced with an air of nationalistic triumph on its own as its ‘Liberation Day’, underscores a new doctrine. The age of predictable partnership is yielding to a more jagged, transactional world. For India, the question is not merely how to respond tactically to this tariff imposition. The deeper concern is how to strategically reorient its foreign policy, trade architecture, and industrial capacity in anticipation of a world shaped by asymmetry and opportunism.

The context is inescapable. India and the US have been moving towards a comprehensive bilateral trade arrangement. Prime Minister Modi’s Washington visit earlier this year signalled the intent. March’s working-level meetings in Delhi between the USTR and the Ministry of Commerce hinted at a collaborative path ahead. But before pen could reach parchment, the United States delivered its preface in the form of tariffs. That move, in an ideal rules-based world, should mean that the very balance of trust and timing in international negotiation is broken.

But let us not read this as a rupture. It is better understood as an inflection point. America’s trade posture has entered a new phase: muscular, self-interested, and unapologetically unilateral. This is no longer about tariffs on goods alone. It is about reasserting control—over supply chains, trade, technologies, talent flows, and digital ecosystems. Importantly, it is doing so for its internal domestic political capital.

For a nation like India—emerging in scale, ambition, and global relevance—this moment requires more than diplomatic nuance. It demands a redrafting of the national playbook and even asserting its global political capital. On foreign policy, India must now navigate relationships not only with states but with systems. Multilateralism is fraying. Bretton Woods institutions, while still relevant, are increasingly bypassed by bilateral power plays and informal mini-lateral coalitions. India must deepen its engagement with non-aligned but economically emergent powers, such as Brazil, South Africa, Indonesia, and Mexico, while strengthening its seat in regional forums like ASEAN and BIMSTEC. The ability to craft plurilateral trade and technology partnerships outside the shadow of US-China polarity will be critical.

Equally, India must not shy away from a pragmatic compete-and-collaborate strategy with China, working together in multilateral groupings like BRICS and SCO, where economic synergies remain viable, while firmly competing in strategic and technological spheres. At the same time, India must re-express its strategic autonomy, not as a doctrine of non-alignment but as one of multi-engagement. This means dealing with the US as a strategic partner in defence and security while being unafraid to pursue alternative trade corridors with Europe, Africa, and Latin America.

On trade policy, India must shift to an anticipatory posture, with Plan Bs and Plan Cs. The assumption that integration into global value chains would yield automatic dividends must now be revisited. Trade agreements must no longer be viewed as symbolic wins but as instruments of leverage, resilience, and hedging. After all, the rise of domestic political urgencies for heads of states globally is another reason why short-termism is becoming an increasing risk.

The pursuit of FTAs must be accelerated not just for market access but for regulatory convergence in standards, certification, and customs processes. Equally important is the development of counter-tariff strategies: rules-based retaliatory frameworks that can be triggered without causing diplomatic friction but still protect national interests. After all, if India wants to play its card as a consumption economy with one sixth of humanity, with increasing disposable income as a market offer, then it must extract its economic gains, without sacrificing strategic, economic, social and digital sovereignty.

Data is the new oil, but it is also the new tariff. American digital platforms operate in India with a scale and scope that would be considered unthinkable for Indian firms abroad. Reciprocity must be encoded in digital trade norms, with India asserting rights over data localisation, algorithmic transparency, and platform accountability.

Then comes the industrial policy response, where India’s real homework lies. If trade coercion becomes a norm, then economic insulation must become a strategy. This does not imply autarky. It demands competitiveness. India must now recast its industrial policy from subsidy-led attraction to capability-led resilience. The Production-Linked Incentive (PLI) schemes, while impactful, must transition from incentives for assembly to enablers of innovation. Semiconductor fabs, renewable energy manufacturing, defence indigenisation, and AI research hubs must receive policy backing not merely through fiscal outlays but through access to capital, IP protection, skilling pipelines, and export incentives.

More importantly, India’s supply chain dependencies must be reassessed in light of geoeconomic blackmail. Just as China has cornered rare earths and restricted graphite exports as policy tools, India must safeguard its access to critical inputs—lithium, cobalt, rare minerals, and advanced chips—either through strategic stockpiles or joint ventures abroad. Trade diplomacy must now include resource security as a central clause.

All this will mean little without domestic shock absorbers. The Indian export ecosystem still suffers from high logistics costs, erratic energy supply, and fragmented compliance structures. A nation aiming to become a factory to the world cannot afford regulatory friction at home. Customs clearances, port infrastructure, inter-state freight mobility, and MSME credit flows must now be seen as matters of national security, not just economic efficiency. Ease of Doing Business (EODB) alone might need a ministry of its own to harmonise rules and simply allow Indian entrepreneurship to survive, let alone scale.

Meanwhile, one cannot ignore the internal contradictions of the American tariff play. These duties will hurt US consumers through price rises, hurt manufacturers through input inflation, and hurt exporters through reciprocal action. Inflationary ripple effects, already anticipated by the bond and equity markets, will weigh heavily on the Federal Reserve’s monetary calculus. In protecting electoral optics, Washington may well compromise economic stability.

The digital realm is fast emerging as the next frontier of geopolitics, and India must wake up to this reality with urgency and intent. Artificial intelligence, quantum computing, biotechnology, and other emerging technologies will no longer remain neutral tools—they will be weaponised, either overtly through sanctions and export controls, or covertly through algorithmic dominance and data extraction. Whether or not we choose to believe in the inherent goodness of humanity, statecraft is not built on sentiment—it is built on foresight, supremacy, and risk mitigation.

Just as 20th-century power revolved around oil, steel, and arms, the 21st century will revolve around code, chips, and cognition. The next great trade wars will be fought not in containers but in cloud servers, and the next military confrontations may well be triggered by digital sabotage or AI-enabled escalation. India must define digital sovereignty, build techno-strategic alliances, and assert its place as a rule-maker, not merely a rule-taker, in the global digital order. It is time for us to plan the ‘how’, and to calibrate ourselves.

Dr Srinath Sridharan is a policy researcher, corporate advisor & independent director on corporate boards. Author of Family and Dhanda. X: @ssmumbai

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