The United States, in terms of its global economic outlook, is behaving like a rogue power today. It led the world on the garden path of Washington Consensus economic policies in the post-war era. This also included a rules-based trade liberalisation under the aegis of the World Trade Organisation (WTO). It was a beneficial deal for capital and consumers in advanced countries including the US. But it also created a large cohort of losers among the non-rich in the advanced world, which, eventually created the ground for someone like Donald Trump to capture political power.
Today, Trump is using this political capital to take America away from its trade liberalisation commitment and wreaking havoc on the global trading order. The huge disruption and harmful consequences, including for the American economy, notwithstanding, a democratically elected government in a sovereign country has every right to change its policies including on things such as trade.
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That multilateral bodies such as the WTO are bystanders to this disruption by Trump only underlines the fact that the so-called rules-based order was always tilted towards the US than actually multilateral in the true sense of the term. The rest of the world, India included, has no choice but to respond, adjust and cut their losses.
Trump’s rhetoric vis-à-vis India has been quite shrill in the recent past. He has described India as a country which has very high tariffs and is demanding that these be brought down. Has India really been exploiting its high tariffs to some sort of mercantilist prosperity which trump now desires for the US? The numbers speak for themselves.
The World Bank’s World Development Indictor (WDI) database gives merchandise export values for all countries. in 2023, India’s merchandise exports were valued at $431.5 billion, not even 2% of the global total of $23 trillion. For China and the US, these numbers were $3.4 trillion and $2 trillion respectively. While the US has lost some of its exporting prowess – its global share in exports from fallen from 16% in 1960 to 9% today – and China has made massive strides with its global share rising from 2% to about 15%, India’s export share has been consistently below 2% throughout this period. This is symptomatic of anything but a country which has exploited the export route to prosperity.
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Even the bilateral trade numbers with the US are revealing. According to data from the US government’s Bureau of Economic Analysis, US had a total goods trade deficit of $1.2 trillion in 2024. India’s contribution to US’s goods trade deficit was just $45.7 billion, which is much smaller than countries such as China ($295.4), European Union ($235.6), Mexico ($171.8), Vietnam ($123.5), Ireland ($86.7), Germany ($84.8), Taiwan ($73.9), Japan ($68.5), South Korea ($66.0) and Canada ($63.3).
Evidence, however, matters little to someone like Donald Trump and India now has to negotiate a trade deal with the US. The grapevine has it that the US wants India to reduce its tariffs across the board. In a lot of things, this should not be a problem actually. Whether or not Elon Musk’s Tesla cars have tariffs makes very little difference to their potential demand in India. The biggest reason is only a handful of Indians can afford cars that expensive. To put this in perspective, luxury car-marker BMW sold 15,721 cars in India in 2024, its best ever performance in the country. The company had sold 714530 units in China in 2024 despite the number being a 13% fall from previous year. The larger point is, most of US’s manufacturing exports are far too expensive to be affordable or competitive in India and even a tariff reduction will not make much of a difference.
It is precisely because of this reason that the US has its eyes on the farm and dairy market in India. While the US would be grossly uncompetitive even in these markets from a purely economic perspective, it offers massive farm subsidies to its agricultural sector to make them competitive in global markets. OECD estimates put the estimated financial support to US agriculture at $118 billion in 2023. In rupee terms this comes to more than ₹10 lakh crore, more than two times what India spends on its food and fertilizer subsidies and cash transfers to farmers.
When read with the fact that India has almost 80 times more farmers than US, the asymmetry in farm support between India and US becomes even more staggering.
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Reducing tariffs on farm products, especially vis-a-vis something as subsidised as American agriculture, would be nothing short of hara-kiri for our food security and livelihood concerns. It is also important to underline that India has been using its agricultural tariffs and even export controls strategically in sync with domestic supply side considerations in the food market. Americans, especially under Trump, once they get used to open markets with low tariffs are unlikely to be a sport when we do our tactical trade maneuvering in food markets.
Why are these facts not being spoken loudly enough from the Indian side? Why did Trump get the bizarre idea that India has taken undue advantage from the US on the trade front? Why should the US administration, under Trump or anybody else for that matter, be allowed to get away with the fact that its heavily subsidised agricultural is a systemic threat to subsistence level agriculture in many countries of the Global South, India included? The current noises against Trump’s trade wars make it look like only Canda, Mexico, EU and the Chinese, along with some free-trade economists, matter in the world.
Things were not like this always. It was under the first National Democratic Government (NDA) government led by Atal Bihari Vajpayee and commerce minister Murasoli Maran, that India led the entire Global South’s battle from the front in the Doha Ministerial of the WTO in 2001. The Doha Round, which was subsequently scuttled, is one of the biggest de jure victories of poor countries over rich ones in the history of capitalism. Its promise was to make trade fair while making it more open. While bulk of the blame for the frittering away of Doha Round gains should go to the advanced countries, major players in the global south, India included, should also ask themselves whether they made a poor short-term bet on investing in bilateralism over pursuing the hard-fought gains of multilateralism.
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One can argue that there was good reason to do what India did. Indian economy has seen a growing hiatus between its rich and poor segments. To be sure, the dynamic component of the Indian economy, outside some services, is nothing compared to global competitors in the world. Post economic reforms, the former has been nudging the policy establishment to engage more and more with the advanced capitalist world even if it requires ignoring or reneging on the concerns of the latter.
The solution the Indian state arrived at was to use the revenue generated by the growth in this dynamic sector to provide more and more welfare benefits to the poor part of the economy. In its external rhetoric, however, it increasingly celebrated the skewed growth story in India rather than highlighting the massive inequality and structural transformation problem which continues to persist. Things such India becoming the third largest economy in the next couple of years and a developed economy by 2047 are exactly this kind of posturing. People like Trump have grabbed this narrative and are now using it to buttress their demands that India does away with the safeguards it has for protecting the interests of its poor. If not entirely, this is partly a crisis of our own making.
Raising questions about the systemic inequality in global economic order does not excite stock markets or sovereign wealth funds. But major countries such as India raising these concerns does amplify the concerns of a much larger part of humankind which has not made any significant gains from the global economic order which the likes of Trump are now claiming has shortchanged the US. These investments can be used to organize a pushback when a major economic power goes rouge and threatens even the minimal safeguards for the poor in the Global South.
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If the global economic order has to change – the status-quo looks increasingly untenable – it can only change for better when the Global South raises its own concerns rather than parroting the dogma of a global elite which has used the current order to generate massive wealth for itself while perpetuating massive inequalities amidst what can only be described as sub-par global growth in modern capitalism’s history.
India’s economic destiny can only be redeemed by pushing for a more egalitarian economic order than doing distress-deals with a mercantilist leader who has captured power by exploiting the anger against a discredited elite in his home country. Doing this however will require a significant change in political economy orientation of India’s policy and politics. It must be ready to talk about inequality and its systemic roots rather than trying to push it under the carpet it with the palliative of what is grossly inadequate welfare. As is obvious to anybody, the existing political class — it is significantly richer than the average Indian — will find it very difficult to do this.