Is global free trade dead under Trump? Can India help revive free trade as the world’s fastest growing large economy?
US Vice President J.D. Vance’s four-day visit to India this week underpinned Delhi’s role as a key lynchpin of economic stability, even as headwinds continue to stir the global economy amidst President Trump’s trade wars. Different global regions are dealing with the turmoil in different ways.
United against terrorism
Coinciding with Vance’s high-profile visit came the horrific terrorist attack in Pahalgam, Kashmir. The immediate and unequivocal condemnation of the attack from Donald Trump to Vance and the US State Department reflected the strength of the bilateral relationship under the current American administration.
President Trump was on the phone to PM Modi within hours and took to Truth Social to reiterate that “the United States stands Strong with India against Terrorism”. This demonstrates the robust American commitment to a multidimensional partnership with India, which goes beyond just trade.
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Trump’s trade wars
The US President has suspended the mooted 26 per cent tariffs against India and reciprocal tariffs against most trading partners until July 9. China is the notable exception, with 145 per cent tariffs slapped on it (although he may drop that sharply, pending a trade deal with Beijing).
This reflects a climbdown on a heated trade war rhetoric following pushback from markets and business. However, it is difficult to judge when Trump is bluffing to get a good deal, such as minimising tariff and non-tariff barriers for US companies. Vice-President Vance further emphasised this when he urged India to remove non-tariff barriers to American trade and investment. “We want to do good commerce and strike good deals with our friends,” he said during media interactions in India.
Vance also welcomed the Modi government’s commitment to removing nuclear liability laws, enabling US companies to finally build lucrative nuclear reactors in India after decades of negotiations.
Tariff rationale
Vance announced that India and the US have finalised the terms of reference for trade deal negotiations, demonstrating tangible progress in trade talks during his visit. India and the US aim to increase bilateral trade to $500bn by 2030. The Trump administration appears to aim for minimal barriers to US trade in goods and services, while simultaneously enabling the restoration of US manufacturing in America’s industrial heartlands.
Notably, Trump won the election in significant part because voters from these areas passionately backed his agenda to restore US manufacturing. Trump may also be aiming to use money earned from tariffs to pay down US national debt and lastly forcing countries to move away from supply chains dominated by China.
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The UK-US divide
Even though Trump only imposed only 10 per cent tariffs on the UK, this will still generate some costs on Britain’s economy.
Chancellor Rachel Reeves was in the US this week for the Spring IMF meetings and will use the visit to lobby Trump on a new mutually beneficial UK-US trade deal, particularly pushing for a reduction in tariffs on British cars from an exorbitant 25 per cent.
The strategic impact of Trump’s tariffs has been to push Britain to look for alternative trading partners. While China is high on that list, India as a fellow democracy fits the bill better. London and Delhi are aiming to get a trade deal done within this year, with reportedly 90 per cent of the Free Trade Agreement (FTA) under negotiations now agreed.
Russia – sanctioned but not tariffed
Russia presents a remarkably interesting and potentially unique case. It has not been placed under a tariff regime by Trump, with the rationale being that the US does not really trade with Russia as it remains heavily sanctioned in the aftermath of its invasion of Ukraine.
Trump has however threatened Russia with potential 50 per cent tariffs on its oil exports, in an effort to get Moscow to make concessions towards peace, and to get it to the negotiating table. Trump and Vance have long made it clear that the Indo-Pacific is their priority. They want to end the Russia-Ukraine war and shift focus to the Indo-Pacific and China, which will diplomatically benefit India as the prime US strategic partner against China.
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EU reaches out to China
The European Union (EU) has decided to seek Chinese help to cope with the downsides of Trump’s trade tariffs. From French wine and cheese exporters to German cars, machinery and pharmaceuticals companies, many European companies suffered serious shocks. Even after Trump suspended the tariffs to 10 from 20 per cent, European markets are still reeling in the economic aftermath.
A prospective EU-China trade and strategic partnership seems unlikely at first glance, given that Trump’s trade wars are aimed partially at convincing countries to decouple their supply chains from China, and emerging EU defence co-operation with India is partly aimed at China. China is, however, more geographically distant than Russia (and not at war in Europe unlike Moscow), so it is easier to maintain diplomatic ties with Beijing for Brussels, Paris, and Berlin. The EU has also explicitly said that it will not strategically decouple from China as a condition of signing a new trade deal with America.
The Gulf
The Gulf states such as Saudi Arabia and the UAE hold some 32.6 per cent of the world’s proven oil reserves, and hold huge financial assets, enabling it to weather the 10 per cent tariffs imposed on it by the Trump administration.
Interestingly, Modi was in Saudi Arabia on a state visit, shortly after meeting VP Vance, to push for a revived India-Middle East Economic Corridor (IMEC) – a massive multi trillion-dollar trade route linking India to the UAE, Saudi Arabia, Israel, and Greece. PM Modi’s aircraft was given an airborne guard of honour by Royal Saudi Air Force jets on his arrival in the country, with the symbolism reflecting a growing Gulf turn to India given uncertainty coming from the US.
Given the vast wealth of the Gulf States, and India’s economic engine it is possible that a revival in global free trade could come partly from initiatives spearheaded by India and the Gulf states, who also host large Indian diasporas.
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India – prized trading partner
India stands out as being among the most coveted trading partners, with a market of over a billion people and GDP growth averaging over 7 per cent annually. Vance’s four-day visit to India amply showed the new reality of India as a key economic swing state, as well as military partner against China for Washington.
While Vance’s visit to India appeared to be mostly personal, the underlying economic drivers for America, and all global powers to engage India remain as strong as ever.
Jeevan Vipinachandran is a UK-based writer and political analyst specialising in political conflict and counterterrorism. With a Masters in Comparative Politics: Conflict Studies from the London School of Economics (LSE), his core interest is in international relations with a special focus on the rise of India and its impact on the world stage.
*Info: US-India shared priorities