Trade wars are not fought with missiles and tanks, but their impact can be just as devastating. They are battles waged with numbers, policy manoeuvres, and, often, a touch of political bravado. The latest salvo? A fresh round of tariffs proposed by Donald Trump ~ an economic cannonball that threatens to shake global markets and redraw trade alliances. But let’s not make a virtue out of necessity. Tariffs rank amongst the oldest tools in a country’s arsenal. Before free-trade pacts and worldwide value chains, empires and kingdoms utilized tariffs both for shields and for swords ~ protecting domestic industries from competition and striking at competing economies with retaliatory tariffs.

The British Raj played this game with perfection, drowning out India’s industries with predatory tariffs and ensuring British goods deluged the subcontinent. India, for its part, learned its lessons, too. From post-inde pen dence protectionism to present-day calculated imposition of import tariffs, tariffs have been used to protect national interests and promote industries. And now, history is repeating itself ~ only this time, the battlefield is global, the stakes are higher, and the players more interconnected than ever. The real question is: Will this new wave of tariffs strengthen economies, or are we all walking into a self-inflicted economic crossfire? President Trump’s fresh wave of tariffs ~ 25 per cent on imports from Canada and Mexico; 10 per cent on China ~ have fired up a new round of economic brinkmanship.

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What started as a policy aimed at “America First” is now reshaping global trade dynamics, forcing governments and businesses alike to rethink their strategies. Again, this is not a new play book, but Trump’s behaviour is not routine at all. In contrast with traditional tariff realignments through negotiations and reorientation economically, his actions are quick, strong, and one-way ~ raising concerns about the unpredictability of U.S. trade policy. The immediate fallout is clear: higher costs on imports, disrupted supply chains, and a wave of uncertainty for multinational businesses.

Companies operating across North America ~ especially in the automotive, electronics, and consumer goods sectors ~ now face rising costs, which could trickle down to consumers. When foreign competitors face increased duties, domestic manufacturers, with less competition, often raise their prices as well. Estimates suggest that new tariffs could add up to $3,000 to the price of some of the 16 million cars sold in the U.S. each year. And the impact doesn’t stop at America’s borders. While the U.S. economy is cushioned by its large domestic market, nations like Canada and Mexico ~ where trade contributes nearly 70 per cent of GDP ~ stand to lose much more.

Bloomberg Economics estimates that a 25 per cent tariff on select goods could cut Mexico’s GDP by 16 per cent, a shockwave that could ripple across Latin America. China, meanwhile, is no str – a nger to trade battles. Over the years, it has diversified its eco – no mic dependencies, with exp – orts and imports now making up just 37 per cent of its GDP, far lower than the 60 percent levels of the early 2000s. While the tariffs will sting, Beijing is more insulated than before. For the world economy, the question is no longer just about tariffs ~ it’s about trust. Trade deals, painstakingly drafted over years, now seem fragile. Why should any country invest years in trade agreements if they can be overturned with a stroke of a pen? The rules-based global order is at risk of turning into a free-for-all, where economic alliances are dictated more by political whims than by mutual benefit. The biggest concern for global manufacturers is the disruption of integrated supply chains.

Businesses that once depended on seamless cross-border trade now face higher costs, reduced efficiency, and potential layoffs. Retaliatory tariffs are already being discussed in various economic blocs, and if countries start engaging in tit-fortat measures, a full-fledged trade war could hit global markets. Amidst this uncertainty, India is watching closely ~ but with confidence. Unlike Canada, Mexico, or China, India does not face an immediate direct hit. However, as the ninth-largest contributor to the U.S. trade deficit, India has been on Trump’s radar, particularly over tariffs.

The U.S. is India’s largest trading partner, with bilateral trade reaching $77.5 billion in FY24, and a trade surplus of $35 billion in favour of India. Key export sectors could see shifts ~ textiles, ($10 billion in FY24) which have already witnessed a decline over the past two years; engineering goods ($17.6 billion in FY24) which remain a stronghold; electronics ($10 billion in FY24) which have seen a multifold increase, and pharmaceuticals ($8.7 billion in FY24) continue to be critical export segments ~ all of which will depend on how global trade realigns in response to the tariff war. Yet, this is not a cause for alarm ~ it is an opportunity. If China faces higher barriers to U.S. markets, Indian exporters could step in to fill the gap.

Sectors like electronics and garments, where India has been ramping up production, can position themselves as alternatives to Chinese suppliers. Despite rising global trade tensions, India has taken proactive steps by reducing the average customs duty from 11.65 per cent to 10.66 per cent in the Union Budget, sending a positive signal to global markets. The India-U.S. trade relationship, built on mutual trust, is expected to strengthen further, fostering long-term economic cooperation Moreover, Prime Minister Narendra Modi’s upcoming visit to the U.S. will be crucial in shaping India’s position. Given the strong economic and strategic ties between India and the U.S., there is every reason to believe that India will navigate these challenges effectively. Our focus must remain on expanding manufacturing, strengthening infrastructure, and making India an attractive destination for businesses looking for stable alternatives amid global trade tensions. Trade wars, even those that begin with bold declarations, end with negotiations, realignments, and, ultimately, new opportunities.

The current tariff battle may disrupt economies, but it also forces countries to rethink dependencies and create new economic strategies. For India, the goal is clear: stay resilient, negotiate smartly, and turn global uncertainty into a stepping stone for economic leadership. While the world worries about rising tariffs, India must remain focused on its long-term vision ~ becoming the third-largest economy and a global manufacturing powerhouse.

(The writer is Professor of Finance – XLRI Xavier School of Management and a BJP leader)