FINALLY, it is happening through the US president’s executive orders — closure of USAID, the start of a tariff war to balance the trade deficit, challenging of trade liberalisation and breaking away from global value chains.
The US has managed to disrupt global markets by unilaterally altering the terms of trade in the name of reciprocity for the world’s largest consumer market.
In disrespect to the governing rules of the WTO and internal Congressional processes, this executive order is based on a so-called economic emergency in the US. It has not only signalled an uncertain future for economic engagement but has also announced the beginning of an era of popular protectionism.
At the end of the day, it seems all about curtailing China, opening up spaces for US companes in the global marketplace and balancing US trade deficit. Evidence suggests, though, that protection through tariffs does not lead to achieving medium-term goals of investment, competitiveness and job creation.
Various economies are left with no choice but to come up with a short-term response to adjust to the new ways of engagement with the US administration. The top five suppliers of US imports in 2022 were: China ($536.3 billion), Mexico ($454.8bn), Canada ($436.6bn), Japan ($148.1bn), and Germany ($146.6bn), while Vietnam, India, Bangladesh and Pakistan exported $120bn, 90bn, 8.3bn and 5.2bn respectively to the US.
So, the higher tariffs could be a massive downward impact on the GDP of economies that largely depend on their exports to the US, and global financial markets are negatively responding to this development. From the other side, the top five purchasers of US goods in 2022 included Canada ($356.5bn), Mexico ($324.3bn), China ($150.4bn), Japan ($80.2bn), and the UK ($76.2bn).
The China factor remains one of the key driving forces behind this US presidential order. China, the country the US has its largest trade deficit with, has been hit with the highest 125 per cent tariff, prompting Beijing to respond with similar countermeasures. The escalation has marked the beginning of a new global trade war between the world’s two largest economies.
The total US-China bilateral trade in goods was $582bn in 2024, down from $661.5bn in 2018 — the US share of Chinese exports dropped from 19.2pc to 14.7pc. The general perception is that China will emerge as a winner in the medium term due to its dominance in technology and market diversification under the Belt & Road Initiative.
The other major change for developing countries is the closure of USAID. Historically, bilateral aid, multilateral loans and market access have remained visible foreign policy tools for fostering economic diplomacy and geopolitical influencing. Since World War II, the model of delivering aid and concessional loans have undergone several adjustments — from building infrastructure to military aid and from food and medicines to building climate resilience.
The real shock hit the so-called international development sector when on the day of his inauguration, President Trump issued an executive order for “re-evaluating and realigning United States foreign aid” that said the US “foreign aid industry and bureaucracy are not aligned with American interests and in many cases antithetical to American values” and that they “serve to destabilise world peace”.
What do the current economic shocks mean for Pakistan?
Since that order, which froze almost $72bn of US foreign development assistance, the Trump administration has moved to shut down the 65-year-old USAID. While foreign aid has always been aligned with the political priorities of donor countries, it has also helped poor countries deal with natural disasters, displaced populations due to conflicts and other economic shocks like Covid-19.
The US began providing economic assistance and military aid to Pakistan shortly after the latter’s creation in 1947. In total, the US obligated nearly $67bn (in constant 2011 dollars) to Pakistan between 1951 and 2011. In 2009, in an attempt to signal America’s renewed commitment to Pakistan, the US Congress approved the Enhanced Partnership for Pakistan Act (aka Kerry-Lugar-Berman bill).
KLB’s intention was to put security and development on two separate tracks. The Act authorised a tripling of US economic and development-related assistance to Pakistan, or $7.5bn over five years (FY2010 to FY2014) to improve Pakistan’s governance, support its economic growth, and invest in its people. Between FY2002 and FY2009, only 30pc of US foreign assistance to Pakistan was appropriated for economic-related needs; the remaining was allocated to security-related assistance.
For the past three decades, Pakistan has failed to bring a change to the structure of its economy which remains largely dependent on non-exportable services. Under the emerging scenario of US-Pakistan trade, our exports are expected to take a hit due to a potential dip in consumer demand in the US. The opportunity arising from the pressures on our competitors is unlikely to materialise in the short term as the investment climate remains unfavourable for the expansion of export-led industry, knowledge products or relocation of industry from China and East Asia.
The best Pakistan can do in the short term is to control the potential damage through trade and strategic diplomacy with the US. Pakistan’s trade deficit with China is huge and the US may ask for shifting some imports towards itself under the argument of reciprocity. This will lead to making some difficult choices as maintaining a balance between relations with the US and China will get more difficult. It is yet to be seen if China will consider giving more market access to Pakistan to make up the potential trade losses with the US.
For Pakistan, transitioning from using geopolitics and diplomacy as tools for economic gains in the shape of aid, market access or investment is inevitable. There is an urgent need to develop an economic value proposition based on the competitiveness and diversification of the economy. This can only be done if institutional changes are carried out to delegate economic transactions to the private sector.
The current uncertainties might open up space for trade with India and other regional countries. Pakistan’s failure to leverage the connectivity infrastructure needs to be revisited under the tariff war. There are a number of markets in East Asia, Southeast Asia and the Middle East that will be looking for diversification from the US and China.
Can Pakistan offer an attractive economic value proposition to partner with these countries? At the end of the day, Trump’s tariffs have only served to accelerate moves to a new global economic order that will shape the contours of future globalisation and global politics.
Published in Dawn, April 12th, 2025
Rafia Zakaria
IT was a week of turnarounds. The Trump White House, eager to remain on the warpath with the rest of the world, came down with ridiculous and enormous tariffs for other countries. On April 2, 2025, President Donald Trump imposed a universal tariff on most nations, sending the US stock market into a tailspin, with trillions of dollars wiped out within days. For his part, President Donald Trump acted nonchalant and went off to play golf with the visiting Saudis. Then on April 9, even more draconian reciprocal tariffs were imposed on another slew of countries — allegedly based on a formula that assessed trade deficits and existing tariffs on American goods. Amid the mess, Trump officials advised targeted countries not to retaliate.
China, however, did not listen. After the April 2 tariffs, it decided to retaliate with an 84 per cent tariff on US goods, hiked later to 125pc in response to a further increase by Trump. Unsurprisingly, this turmoil rattled investors everywhere, and nearly all markets took a hit. Economists and analysts began sounding the alarm about a global recession. The White House’s belligerence didn’t suggest that the president — who is using emergency powers to enact these tariffs — was about to capitulate.
It might have gone on — had the US bond market, one of the world’s safest and most stable investments, not suddenly started to tank. The bond market — essentially the channel through which countries buy US debt in 10- and 30-year increments — reflects global confidence in America’s ability to repay its dues. That confidence has traditionally remained high, given the size and strength of the US economy. Unlike stocks, which are known for their volatility, the bond market is supposed to be steady. But not this time.
The current situation may present an opening.
The sudden volatility there is likely what forced Trump’s hand, when he recently announced a 90-day pause in tariffs on all countries — except China. Stock markets around the world exhaled. The NASDAQ posted its biggest single-day gain since 2008. China, however, now faces 125pc tariffs.
The world’s two strongest economies have locked horns — and this will affect everyone, including Pakistan. While Pakistan was among the countries hit with a 29pc tariff (now paused for 90 days), the current situation may present an opening. One of the things the US is pursuing is to negotiate entirely new trade agreements with the rest of the world. The tariffs, in this sense, are a strange sort of invitation to close a ‘deal’ with the Trump administration. Countries that do so may find themselves in a better position than those that don’t. All they need is to propose something the Trump team can spin as a win.
The countries that dominated in the pre-Trump 2.0 world are no longer favourites. The US turn away from China and, to some extent, India means it will need to rely on smaller suppliers to fill the gaps left behind. The aim is to decimate China’s monopoly by diversifying who gets access to the US consumer market. Pakistan could play a role in this diversification. It cannot replace China or India, but may be able to find niche areas that serve unmet demand in the US.
This task would have been easier had the US objectives around these tariffs been clearer. Take the case of Vietnam, slammed with a 45pc tariff before the 90-day pause. Exports to the US make up nearly a quarter of Vietnam’s GDP, so it was no surprise the latter country quickly arrived at the negotiating table. The Trump administration’s response was unexpected. Trump adviser Peter Navarro dismissed Vietnam’s 0pc tariff offer as “not enough”. The reason? Navarro accused Vietnam of “non-tariff cheating” — routing Chinese goods through its ports to bypass US restrictions. The message was blunt: Vietnam must choose between the US and China. In Trump’s world, there is no room for divided loyalties. Vietnam, it seems, has made its choice. Reports now suggest the country has agreed to purchase expensive defence equipment — including warplanes — to help reduce the trade deficit and show goodwill.
Adept diplomats negotiating on Pakistan’s behalf could learn a lot from this. Pakistan desperately needs better trade agreements to lift itself out of economic stagnation and reduce its dependence on IMF lifelines. The country has the capacity to supply textile-based goods to the US consumer market — and with China out of the picture those products could fare better if Pakistan secures more favourable trade terms.
China’s loss could be Pakistan’s gain — if Pakistan is bold enough to seize the moment and clinch a deal with the Trump administration that can be packaged as a win. For a country that has waited a long time for an opportunity, this might be one.
rafia.zakaria@gmail.com
Published in Dawn, April 12th, 2025
WITH one stroke of his pen, a day after April Fool’s Day, Trump left the entire world bewildered at his tariff policy. He made the entire secretariat of the World Trade Organisation redundant, on the one hand, and all other countries engage in technical exercises with regard to the impact of his new tariffs on their economies, on the other.
The proponents of free trade (as if it really existed before Donald Trump’s order) are now trying to find new ammunition to attack Trump’s tariff plan. New phrases had been coined much before Trump assumed his second presidency. A popular phrase is ‘the transactional nature of his approach to dealing with international geopolitical relations’ (as if pre-Trump relations were based on ‘benevolence’!). While, as an economist, I am a proponent of free trade, I must admit that I am having trouble understanding the doomsday nature of predictions about the consequences of Trump’s tariffs in the US and the rest of the world. More on this later.
In writing the above, I run the risk of being labelled a proponent of Trump’s economic policies. I don’t want to make disclaimers such as are now common in the writings of many persons of science and knowledge who when agreeing with one point of Trump, start with a paragraph dissociating themselves with Trump’s utterings or actions.
For example, scientist Richard Dawkins recently wrote: “In my opinion Donald Trump is a loathsome individual, utterly unfit to be president, but his statement that ‘sex is determined at conception and is based on the size of the gamete that the resulting individual will produce’ is accurate in every particular, perhaps the only true statement he ever made.” When Trump and his vice president gave a dressing down to Volodymyr Zelensky in the Oval Office, the best analysis came from Jawed Naqvi in this paper: “The point we may have missed was Trump’s sound advice to Zelensky showing him the door: ‘You are gambling with World War III.’ It’s hard to remember an American president confessing to an ally he had been arming in a brutal war to be wary of the conflict turning into a nuclear war.”
Trump’s order was an invitation to negotiate; that’s probably why he tweeted that China got it wrong by retaliating.
Have we missed something in the Trump order? From my reading of the fact sheet released by the White House on April 2, 2025, it looked like an invitation to all affected countries to negotiate bilaterally with the US to move in the direction of pre-Trump free trade to the extent acceptable to him. Commentators have stated that the tariff numbers in the order are based on an allegedly erroneous formula. But what actually matters is that almost all countries have imposed higher tariffs on American goods compared to what the US has imposed on theirs. If tariffs are bad, why are these much higher in all other countries?
All countries other than the US suddenly seem to have become champions of free trade. If so, they all can and should reduce their tariffs. If not, then it means that their actions are not consistent with what they propose to champion. It is almost impossible to find fault with the principle ‘treat us like we treat you’. Trump has left the door open for free trade (relative to what it will be if no country negotiates with the US to seek concessions by somewhat lowering their tariffs) in his order. Retaliation is not a good option for any country, at least, for one like ours, that is always at the mercy of other countries. China has retaliated; it is not like us and is already a superpower and well on its way to dominating the world.
Trump’s order was an invitation to negotiate; that’s probably why Trump tweeted that China got it wrong by retaliating. Only time will tell who was right or wrong. Whichever way the tariffs have been crafted in Trump’s order, they induce uncertainty regarding future levels of the actual tariff, except baseline tariff which is 10 per cent for all countries. The formula for the level of additional tariff will be debated in negotiation. The correct level imposed by a country should be clearly known by that country’s officials. If that is lower than what Trump’s order imposed, the order has the flexibility to reduce it in future. But this process will take months, if not years, to complete. Until that process is kick-started and ends, uncertainty over America’s tariff policy will continue. This will be bad for the US and the world economy. It seems that an international recession, including in the US, is likely to occur soon. Strangely, when this uncertainty is pointing towards greater certainty about a US trade policy-induced recession, interest rate cuts by the Fed are likely to come soon, notwithstanding the Fed chair Jerome Powell’s recent talk about maintaining interest rates under heightened uncertainty. Trump seems to have visualised a recession much earlier and hence is demanding rate cuts notwithstanding the Fed’s autonomy.
The international media’s ‘doomsday’ reaction is entertaining. The Economist blurted out that Trump’s “mindless tariffs will cause economic havoc”. The Wall Street Journal chided: “Blowing up the world trading system has consequences that the president isn’t advertising.” The Financial Times warned: “Trump takes world to brink of full-blown trade war.” But why is Trump risking a recession in his own country with tariffs? It is because he wants to transfer resources from US consumers to producers and his government (through tariff revenues). This is consistent with what he was campaigning before he won the trust of the majority of Americans. One has to admire the tenacity of his actions, consistent with his words, and the speed with which he is moving to deliver his agenda. No matter how loathsome he might be to Dawkins and others in the US and abroad, Trump is convinced that he will restore manufacturing supremacy in America. He does not care if prices of cars rise in his country and admits this with impunity. People like me wonder when did the US actually lose its manufacturing prowess!
rriazuddin@gmail.com
Published in Dawn, April 11th, 2025
Khurram Husain
BY all accounts a world is ending and we don’t know what is going to replace it. For Pakistan this is particularly troubling because despite what we like to tell ourselves, this country has always been deeply dependent on this world to keep itself afloat.
Rarely has the bigger picture mattered more than it does now. To focus only on the short-term impacts would be a mistake. The bigger picture here is brutal in its simplicity, and critical in its importance. For almost half a century now, Pakistan has been kept afloat as a country via bailouts arranged by the institutions of a multilateral world order, chief among them the IMF, followed by the World Bank. The sun is now setting on this world. The day is coming when Pakistan runs into one of its traditional balance of payments crises and runs out of foreign exchange reserves, like it has on more than a dozen occasions over the past four or five decades, and there is nobody around to come to its rescue.
As of this writing, the trade war between the United States and China is escalating with dizzying speed. Within hours both these countries announced massive tariffs against each other’s products, and another round of tariffs was expected from the European Union. Something highly unusual was happening in the financial markets too, as stock and bond markets both started to collapse simultaneously. Usually these two move in opposite directions, because money pulled out of one goes into the other. A simultaneous plunge in both shows far deeper chaos gripping world markets.
Here are some things to note in order to get a handle on a fast-moving situation.
The bigger picture here is brutal in its simplicity, and critical in its importance.
First, the tariffs are not the result of lobbying by industry, agriculture or any other powerful vested interest in America, and they are almost universally denounced by the community of economists in American academia. You will be hard-pressed to find any voice outside of the Trump administration which thinks these tariffs are a good idea.
This is important, because it tells us that this is a madman’s gambit. All earlier tariffs, including those brought by the famous Smoot-Hawley Act in 1930, came into being because of fierce industry lobbying for protection. This time it’s the opposite. Industry, financial markets and academia are united in denouncing these tariffs as reckless. And with their actions, the markets are signaling their displeasure. The sell-offs in the stock and bond markets, the upgrading of the likelihood of a global recession, the closure of factories and layoffs of workers, all are expressions of deep disapproval and apprehension regarding the impact these tariffs are likely to have.
Second, if these tariffs, and the resultant trade war, are being pushed against the will of all-powerful vested interests in America, then what exactly is the big idea here? What do the architects of this policy hope to achieve?
There is a paper titled ‘A User’s Guide to Restructuring the Global Trading System’ written by a relatively unknown individual by the name of Stephen Miran. Published in November 2024, it lays all this out. Miran was subsequently picked by Trump to be the chairman of the President’s Council of Economic Advisors and whereas he disagrees with the pace and intensity with which Trump is pursuing the tariffs, he lays out clearly in the paper why the policy is necessary.
In a nutshell, Miran argues that America is carrying a huge burden in providing a security umbrella to the world as well as its reserve asset, the US dollar. While the US had a dominant position in the world economy (back in the 1960s its share of global GDP was 40 per cent, he says, which has now shrunk to 26pc), the dollar as reserve currency helped America because they could print any amount of money to pay for their bills. But today as the rest of the world has powered on and America’s share of global trade as well as global GDP has shrunk, the dollar as reserve asset has become a burden because other countries can devalue their currencies to cheapen their products in global markets but the US cannot.
To arrest this trend, the US can either take monetary measures (like attaching user fees to dollars held as reserves by other countries) or it can take trade measures through tariffs. He advocates for the latter, argues this is in opposition to what industry and academia wish, that it will be accompanied by a short-term asset price collapse, but eventually could bring America to a position where it can regain some of the ground it has lost to other countries.
Most importantly, he argues for intertwining security and trade relations. Since America provides the security and the reserve asset which underpins the global trade system, it is in a position to use both to arrest the erosion of its own position within this world. “Countries that want to be inside the defense umbrella must also be inside the fair trade umbrella,” he argues.
“Such a tool can be used to pressure other nations to join our tariffs against China, creating a multilateral approach toward tariffs. Forced to choose between facing a tariff on their exports to the American consumer or applying tariffs to their imports from China, which will they choose? … The attempt to create a global tariff wall around China would increase the pressure on China to reform its economic system.”
The key takeaway here is that the tariffs are not about to go away soon, that the institutions which bailed Pakistan out historically could be on their way to disappearing, and that Pakistan could, in the near future, be forced to choose between the US and China. This calls for a comprehensive revamp of our economic strategy altogether. The new world dawning before us will admit neither import substitution orthodoxies nor faith in liberalisation and export-driven growth.
Published in Dawn, April 10th, 2025
Rethinking the Indian Response to Trump’s Tariff War
The Indian government’s response to Trump’s tariff war has been, at best, muted. A recent meeting between the U.S. President and the Indian Prime Minister epitomised this submissiveness. Even as the U.S. government was forcibly deporting Indian nationals; shackled, blindfolded, and transported in military aircraft in a manner starkly violative of human dignity. The Indian government chose denial over protest, publicly insisting that the deportees had not been ill-treated. Further, when Ananda Vikatan, a Tamil-language magazine, published a satirical cartoon critiquing the government’s silence on these humiliations, it was summarily censored under India’s draconian information technology legislation.
Such episodes highlight a broader incapacity to mount even a symbolic defence of Indian sovereignty when affronts originate from hegemonic global powers like the United States. This inability to respond meaningfully to external provocations, whether on trade, diplomacy, or the treatment of Indian citizens, raises important questions about the ideological and structural orientation of the Indian state.
Two interrelated factors underlie this posture of passivity. First, India’s ruling classes and their political apparatus remain deeply beholden to international finance capital, which is largely centred in the United States. Second, this dependency is compounded by a fundamental misreading of contemporary global political economy. These material realities are expressed ideologically through two distinct, yet convergent, wings of India’s neoliberal project: the neo-fascists and the cosmopolitan neoliberals. While the former deploy a pseudo-nationalist rhetoric and the latter a pseudo-internationalist one, both ultimately converge in their reluctance to challenge U.S. imperialist hegemony. Their divergence lies only in the rhetorical justifications they offer for this subservience. These arguments merit closer scrutiny.
One strand of cosmopolitan neoliberal thought argues, somewhat brazenly, that Trump’s tariff war offers India an opportunity to unilaterally reduce its own tariffs. They claim that such a reduction would boost domestic competition and thereby improve economic efficiency. However, this argument is logically inconsistent: if lowering tariffs unconditionally leads to better outcomes, why does the U.S., the world’s most powerful economy, choose to increase them?
Other cosmopolitan neoliberals argue that India is a small open economy while the US is a large open economy, implying that world prices are given as far as the Indian economy is concerned while the US is capable of at least partially influencing world prices. Therefore, it would be unwise for India to engage in retaliation vis-à-vis the the imposition of tariffs by the US. On the face of it, this argument seems somewhat logical and therefore let us examine this further. While it is true that the Indian economy is smaller than the U.S. economy in terms of share of world income, for a number of commodities that India does import and export, the respective share of India's imports and exports in the total world trade is non-negligible. Therefore, the ability of India to partially determine the pricing of its imports and exports can be an element in its trade policy including tariff retaliation.
Moreover, the very structure of Trump's tariff war, which involves differential tariffs on different countries, is a tactic designed to try and prevent coordinated opposition to Trump's trade policy. Therefore, it would be relevant for India to work in multilateral forums such as the BRICS to prepare strong and coordinated responses to Trump's tariff war. However, whenever there emerges a debate around working in multilateral forums such as BRICS to counter Trump's tariff force, both cosmopolitan neoliberals as well as the neo-fascists might immediately argue that BRICS is dominated by China and that the interests of China and India diverge. Therefore, joint action against US hegemonic actions such as Trump's trade war is not possible. However, this is a self-defeating argument and actually amounts to creating non-tariff barriers in the trade between China and India which weakens India's bargaining power with respect to US imperialist hegemony.
For example, cosmopolitan neoliberals as well as neo-fascists often claim that software semiconductor chips made in China could be hacked by the Chinese government and therefore would be inappropriate for use in the Indian economy. Let us assume for the sake of argument that this claim is true. Is there any reason to claim, on the contrary, that semiconductor chips that are designed or produced using US technology cannot be or will not be hacked by the US government? After Edward Snowden's revelations even those working outside governments know the facts about global surveillance by the US government. Under these circumstances, a prudent option available to India would to diversify its chip demand between two or more sources so that no one foreign government can exercise undue leverage in matters of security vis-à-vis India. While this would be the short-run course that would be appropriate in the case of countries like India, over the long run, efforts should be made to develop an indigenous semiconductor industry.
Another common claim by both ideological segments of the Indian neoliberal project is that U.S. tariffs on Chinese goods provide Indian industry with a relative advantage, potentially encouraging multinational corporations to shift production from China to India. However, this argument too is completely disconnected from the concrete situation concerning global production networks. China exercises a leading position in almost all reaches of the technological ladder that pertains to global production networks due to its advantages in infrastructure, skilled labour with respect to wages, domestic demand, the role of the public sector, state support to innovation, and industrial policy (which involves among other things a euthanising of finance capital and the political neutering of enterprise capital). Most of these conditions are incompatible with contemporary Indian political economy and therefore cannot be replicated here without relevant political changes. Therefore, multinational corporations are unlikely to significantly relocate production capacity to India due to Trump's trade war.
Moreover, any process of industrialisation in any country of the world would require for its continuance some Chinese inputs and/or some access to Chinese markets to be sustainable. Under these circumstances, the question before any country, including India, is not whether to engage or disengage from China, but how best to engage with China. The Economic Survey of 2023-2024 had pointed out that India should explore the option of involving itself in global production networks centered in China. However, progress in this respect has been slow and expectedly subject to counter-pressures from cosmopolitan neoliberals as well as sections of the neo-fascist dispensation in India.
Vietnam offers a valuable lesson in strategic diplomacy. Its ability to maintain productive relationships with multiple great powers, without being beholden to any, demonstrates an autonomous balancing strategy. For India, the path to greater sovereignty lies in rejecting the binary of alignment with either the U.S. or China, and instead adopting a policy framework driven by authentic national interests (which is centred around the working people). In order to understand this proposition, let us examine the actual leverage that foreign countries exercise over India.
The fundamental leverage that U.S. monopoly capital exercises over India is through the hegemony of international finance capital that is centered in the U.S. Since India does not have effective capital controls, this allows U.S. monopoly capital to exercise effective power over Indian policymaking. One exception to this trend was when the Biden administration tried to pressure Indian government to cut relations with Russia. The Indian government could not accede to this US demand because the Chinese-Russian strategic concord that would have emerged may have been directed against India. This strategic concord could not have been counterbalanced by the strategic proximity that may have emerged between India and the USA. But in most other matters, the U.S. monopoly capital has been able to influence, to a very significant extent, the contours of policymaking in India. Consider, for instance the examples of India's relations with Iran, with Venezuela, on the question of the conflict in Palestine, and so on. The contrast with US attempts to exercise similar leverage over China or Russia is readily evident.
In the absence of effective capital controls, international finance capital, primarily centred in the United States, continues to serve as a conduit through which U.S. monopoly capital exercises considerable influence over Indian economic policymaking. This structural dependence finds its ideological expression in the distinct yet convergent narratives of cosmopolitan neoliberals and the neo-fascist dispensation.
On the one hand, neo-fascists have intensified a differential squeeze on the socially oppressed (such as Indian Muslims) under the guise of cultural nationalism and security. This project is part of a broader attempt to erase what remains of India’s anti-imperialist legacy from the freedom struggle. On the other hand, cosmopolitan neoliberals, while cloaked in liberal internationalism, contribute to the same erasure by sanitising colonial history and glorifying imperialist globalisation. Though their methods differ, both ideological strands ultimately function to sustain the hegemony of metropolitan capital.
At the core of any meaningful anti-imperialist position lies the understanding that broad-based economic progress in the Global South is not possible without directly confronting the hegemony of metropolitan capital. The recent efforts of U.S. monopoly capital and its state apparatus to drive a wedge between China and Russia is a tactic aimed at forestalling the emergence of a multipolar economic order indicating the waning strength of U.S. imperialist dominance. Against this backdrop, restoring policy autonomy for India must begin with the imposition of robust capital controls on international finance. Once this critical step is taken, several policy options become viable to counter the effects of Trump’s tariff war:
One, India must reduce its excessive reliance on the U.S. market for specific commodity exports. While the U.S. may currently offer higher returns for certain export goods, this concentration increases India’s vulnerability to external leverage. A geographically diversified export strategy will enhance India’s bargaining position across all markets. Such a strategic reorientation, especially one that considers long-term national interest is best undertaken through initiatives involving the public sector, which operates with a longer policy horizon than private actors driven by short-term profitability.
Two, India should actively attract greenfield foreign direct investment (FDI), from both the U.S. and China, in carefully selected sectors and regions. These choices must be guided by a coherent industrial policy aimed at enabling India to appropriately ascend the technological ladder of global production networks while not compromising the objective of full employment. Simultaneously, this policy should aim to reduce regional disparities within India by dispersing industrial development beyond existing hubs.
Three, Resist Pressure to Reduce Import Tariffs, Especially in Agriculture and Key Inputs as succumbing to U.S. demands for reducing import tariffs, particularly on agricultural products would further pauperise India’s already vulnerable peasantry and agricultural labour force. A related argument advanced by cosmopolitan neoliberals claims that high-priced inputs supplied by large domestic firms disadvantage micro, small, and medium enterprises (MSMEs), and that reducing import tariffs would level the playing field and boost MSME exports. However, such logic is deeply flawed. Lowering tariffs on critical inputs may indeed reduce costs for MSMEs in the short run, but it is likely to trigger an import surge that undermines domestic production, employment, profits, and investment in import-competing sectors.
In the current global environment, where export prospects are weakening this would have contractionary effects across the economy. Furthermore, once domestic competitors are displaced, foreign suppliers may increase input prices, thereby nullifying any temporary advantage gained by MSMEs. The structural disadvantage faced by Indian MSMEs in relation to monopoly capital cannot be addressed by import liberalisation. Instead, it demands active policy intervention that redistributes resources away from monopoly capital towards MSMEs. This may include public sector production of essential inputs at regulated prices to mitigate cost pressures faced by MSMEs.
Reviving the Anti-Imperialist Legacy
The ideological currents that dominate Indian policy discourse, be they cosmopolitan neoliberals or neo-fascists, seek to suppress the anti-imperialist ethos that once animated India’s freedom movement. The former sanitise colonial history; the latter attack marginalised communities within the country. Both ultimately serve the interests of metropolitan capital. Genuine anti-imperialism today must recognise that sustainable development in the Global South requires breaking free from the grip of metropolitan capital. The growing strategic anxieties of U.S. monopoly capital, exemplified by attempts to isolate China and Russia signal a waning imperialist order. For India, this moment demands bold and thoughtful policy shifts aimed at recovering national sovereignty, economic justice, and strategic autonomy.
Shirin Akhter is Associate Professor at Zakir Husain Delhi College, University of Delhi. C Saratchand is Professor, Department of Economics, Satyawati College, University of Delhi. The views are personal.
The Strategic Myopia of Trump’s Trade War
The so-called Liberation Day tariffs imposed by US President Donald Trump ostensibly aim to reduce the US trade deficit and revive manufacturing in the economy. However, these measures reflect a fundamental misunderstanding of the international political economy and the United States’ position within it. Let us examine why.
To begin with, the US government has imposed a 10% tariff on all imports, alongside higher tariffs on specific countries, purportedly to reduce its trade deficit with them. The ideological transmission of this tariff war is furthered by the usage of the phrase “reciprocal tariffs” whereby the US is ostensibly responding to tariffs on the part of other countries. But this is unlikely to have much purchase at present.
However, given the concrete array of forces in the contemporary international political economy, the differential tariff war seems to be effectively a tactic to prevent the emergence of a multilateral opposition. Instead, the Trump administration seeks to induce other countries, especially those on whom relatively low tariff rates have been imposed, to engage in bilateral negotiations, which it is hoped will weaken any multilateral opposition.
Therefore, it is not surprising that the US Treasury Secretary has disingenuously argued that other countries should refrain from retaliating against these tariffs, warning that retaliation would provoke further escalation from the Trump administration.
What makes this tariff war even more questionable is the fabricated methodology used to calculate these so-called “tariff rates.” Interestingly, these figures were not derived from actual data on tariff and non-tariff barriers. Instead, the Trump administration simply divided the US trade deficit with each country by the value of that country’s exports to the US, producing inflated and misleading numbers.
This approach gave the impression that countries like South Korea and the European Union (EU) were imposing tariffs of 50% or more on US exports—despite existing trade agreements that clearly contradict such claims. These misleading figures were then used to justify the imposition of punitive tariffs, further demonstrating the rhetorical rather than empirical basis of the administration’s strategy.
Assuming other countries do not retaliate initially, how are these tariffs expected to function? Basic political economy reasoning suggests that tariffs raise the price of imported goods in the US, incentivising domestic producers who were previously unable to compete with foreign rivals to initiate or expand production of these commodities.
Yet this expectation is flawed for several reasons.
First, the assumption that US firms can produce goods at competitive prices post-tariffs, relies on dubious premises. The US imports numerous production inputs, and tariffs on these inputs will raise domestic production costs. Consequently, the ability of US firms to achieve profit rates deemed sufficient to justify new or expanded production may not improve. Instead, domestic firms may exploit higher import prices by raising their own prices, boosting profit margins but reducing the wage share in the economy. The resultant decline in capacity utilisation could offset any positive impact that higher profit margins may have on private domestic investment.
Second, tariffs elevate the domestic price level. With wages stagnant, the wage share would fall, further depressing capacity utilisation and private investment. Private investment tends to depend on two principal factors: (1) capacity utilisation and (2) the gap between the profit rate and the financial rate of return. A higher price level could prompt the US Federal Reserve to raise interest rates, increasing borrowing costs for firms and raising the floor for financial returns. Both effects would discourage private investment.
Third, US production is deeply integrated with supply chains in Canada and Mexico. Tariffs on these nations would raise costs for US firms, explaining why the current “Liberation Day” tariffs largely exempt them. Notably, the US Senate recently voted to reverse Trump’s tariffs on Canada, with support from four Republican senators.
Fourth, any attempt to use tariff revenue to extend or enhance corporate tax cuts for a given level of the budget deficit in the US will involve a regressive redistribution of income from the working people to monopoly capital in the US. This will have an adverse impact on aggregate consumption and, therefore, on capacity utilisation and private investment.
Retaliation by other countries poses additional risks. Anticipating US tariffs, many nations have prepared retaliatory measures. Such retaliation would reduce US exports, negating any import declines caused by Trump’s tariffs. Moreover, tariffs on imported inputs into the US economy would further reduce the competitiveness of US exports. The net effect on the US trade deficit might thus be negligible or even adverse. Countries with near-monopoly control over certain exports could even impose export duties on goods bound for the US.
Broader implications include threats to the US dollar’s reserve currency status. Reduced use of the dollar in trade (due to tariffs) could undermine its role as a store of value. This is likely to be the case, since the store-of-value role of money and the medium-of-exchange role of money are two sides of the same coin.
Moreover, global production networks may reorganise to further marginalise the US. China’s expanding exports to Global South countries and emerging global production networks, excluding the US, exemplify this trend. Coordination among China, South Korea, and Japan in responding to Trump’s tariffs likely signals a shift toward such an alternative.
Underlying causes of US manufacturing decline stem from neoliberalism’s dual focus on domestic labour precarity (through a differential squeeze on working people) and global production relocation (in activities at the lower and lower-middle reaches of the technological ladder within global production networks), particularly to China and countries in its neighbourhood. China has comprehensively ascended the technological ladder within global production networks, surpassing the US in innovation and emerging as at least a peer rival in invention.
Financialisation, driven by US-centric international finance, exacerbated manufacturing’s decline, enriching US monopoly capital while differentially squeezing working people. The gargantuan levels of profiteering by US monopoly capital in private health and private education involve wages for skilled workers capable of coping with this profiteering too high to ensure an adequate rate of return for enterprise capital in the US.
Infrastructure gaps, wage share disparities, and demand patterns between the US and China have further disadvantaged domestic production. The demolition job by Elon Musk’s DOGE (Department of Government Efficiency), bent on dismantling what is left of the social wage in the US, will further adversely impact efforts to revive US manufacturing.
The Trump administration’s expectation of a manufacturing revival presumes that domestic returns on enterprise will exceed those in finance globally for at least some segments of US monopoly capital. However, measures to boost enterprise returns (e.g., tariffs) simultaneously elevate financial returns via higher interest rates that an inflation-targeting central bank must adhere to. Eschewing inflation targeting by the US Federal Reserve will accelerate the undermining of the dollar’s reserve currency status.
The Trump administration hopes to resolve this conundrum through a Mar-a-Lago Accords, which it envisions as a repeat of the 1980s Plaza Accords, where German and Japanese enterprises were short-circuited by currency appreciation to reduce the US current account deficit without undermining the dollar’s attractiveness as a principal medium of wealth-holding for international finance. However, unlike Germany and Japan in the 1980s, China exercises effective strategic autonomy, ruling out a repeat of the Plaza Accords.
Therefore, Trump’s ‘Liberation Day’ tariff war will fail to spur the anticipated resurgence in US manufacturing. It is more likely to accelerate the ongoing relative decline of the US.
Shirin Akhter is Associate Professor at Zakir Husain Delhi College, University of Delhi. C Saratchand is Professor, Department of Economics, Satyawati College, University of Delhi. The views are personal.
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