In a world intricately tied to America’s policies, India watches closely as Donald J Trump prepares to step into the Oval Office for a second term.
With a relationship already fraught with trade tensions, rising protectionism, an uncertain geopolitical landscape, India faces uncertainties about how Trump’s ’America First’ approach could alter bilateral ties. As the global economy teeters on a delicate balance, Trump’s reliance on import tariffs looms as a particularly contentious issue, threatening to disrupt existing international trade networks that developing economies like India heavily rely on.
Still, shared concerns on knee-Jerk Trumpism stretch far beyond the contours of geo-economics. Trump inherits a fractured global landscape marked by the Russia-Ukraine war, tensions in Gaza, and dwindling trust in multilateral institutions. His campaign rhetoric was laced with promises of dramatic tax cuts, deportation drives, and incentives for domestic labour, hints at a bold yet unpredictable shake-up of American and at large the world politics in general.
At the heart of these changes lies Trump’s belief in unilateralism, whether it’s a self-assured America pulling away from alliances, or imposing irrational tariffs as part of strategic threat perception tactics that could trigger global retaliation.
Possible Changes in the Global Order
As the world braces for the ripple effects, one question remains: Will this new chapter in knee-Jerk Trumpism reshape the global order for better or for worse? For India, it doesn’t matter if Trump is a friend or a foe, this kind of uncertainty is unprecedented and may inadvertently force India to diversify its trade relationship with the US.
On the economics of this, a lot of this has to do with how emerging markets interact – presently projected as losing significant share in the growth sectors. The IMF has projected a modest one-tenth percentage point rise in global growth for 2025, which is expected to dwindle down due to Trumponomics. Inflation is expected to grow in the short term and coupled with trade restrictions, negative supply shocks are in order.
This pose risks to emerging markets, especially the net importers with a huge trade deficit with the US. Trump positions tariffs as a catch-all solution, claiming they can resolve issues like trade deficits, domestic job losses, and declining competitiveness. However, these measures have uneven impacts, benefiting certain industries while harming others reliant on affordable imports or export markets.
As shown in the graph above, tariffs often carry a significant hidden cost that far outweighs the revenue they generate. In 2018, the Trump administration's tariffs on steel and aluminium provide a textbook example. While the government collected $1.4 billion in tariff revenue by December, the total cost to importers surged to a staggering $3.2 billion, including a notable deadweight loss — a loss of economic efficiency where both consumers and businesses paid more without corresponding gains.
This imbalance reveals the true burden of protectionist policies: higher prices for industries relying on imported steel and aluminium, from automakers to construction firms. These businesses, in turn, passed on the increased costs to consumers, making everyday goods and services more expensive. The graph underscores this disconnect, where the ’benefit‘ of tariffs (revenue) pales in comparison to the broader economic strain they impose — a pattern that echoed through 2018, leaving Americans to foot the bill.
As noted political economist Dani Rodrik notes, when tariffs are moderate and complement a domestic investment agenda, they can be beneficial. However, indiscriminate tariffs often harm the home economy. Critics further argue that these indiscriminate profits from tariffs are also not used to create jobs or spur innovation instead companies often prioritise shareholder returns or offset inefficiencies instead.
Allies or Rivals? Redefining US' Relationships with Europe and Asia
Trump’s unilateral approach to foreign policy, anchored in his ‘America First‘ doctrine, has far-reaching implications for alliances with NATO, the European Union (EU), and Asia-Pacific partners like Japan and South Korea.
By prioritising transactional relationships over traditional multilateralism, Trump has challenged the very foundations of post-World War II global cooperation, raising questions about the long-term stability of these alliances in a way no former president ever dared not even leaving atleast in rhetoric its forever weather neighbour Canada.
Trump’s strained relationship with NATO began with his criticisms of member nations for not meeting defence spending commitments in his first term. He repeatedly threatened to reduce US involvement, arguing that America was bearing an unfair financial burden. While this rhetoric pressured some allies to increase their defence budgets, it also eroded trust in US leadership. A KIEP analysis highlights that such unilateral threats undermine the alliance’s collective strength, making NATO vulnerable in the face of rising threats like Russian aggression.
In the EU, Trump’s imposition of tariffs on European steel and aluminium exacerbated transatlantic tensions. By framing the EU as an economic competitor, he alienated allies who had traditionally viewed the US as a partner in promoting global trade and security.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which excludes the US, gained traction partly due to the vacuum left by Trump's withdrawal from multilateral trade agreements. A 2023 Canadian report noted that intra-regional trade among CPTPP members grew by 13.2 percent from 2018 to 2021, underscoring the economic advantages of cooperation that the US risks forfeiting.
In the Asia-Pacific, Trump’s approach was similarly disruptive. His insistence on cost-sharing agreements with Japan and South Korea, tied to hosting US military bases, strained relations with two of America’s most critical allies in the region. While his rhetoric aimed at reducing US financial outlays, it ignored the strategic importance of these alliances in counterbalancing China’s growing influence. Moreover, by withdrawing from the Trans-Pacific Partnership (TPP), Trump ceded economic leadership in the region, allowing China to fill the void through initiatives like the Regional Comprehensive Economic Partnership (RCEP).
More recent studies suggest that such unilateralism fosters global fragmentation which further creates structural uncertainties. While nations like India have somewhat been able to capitalise on trade rerouting amid US-China tensions, these benefits are short-term and fail to compensate for the long-term erosion of a rules-based international order. Moreover, history demonstrates that America’s influence and prosperity have often stemmed from its leadership within cooperative frameworks, such as the establishment of the IMF and the WTO after World War II.
India's Path to Economic Resilience and Opportunity
There is little doubt that India is one of the prime hotspots to be affected by the Trump conundrum. As she navigates less nascent years of the ‘Amrit Kaal,’ the Trumponomics 2.0 might be a very numbing speed breaker or a potential accelerator. We see a lot of these effects manifesting in terms of the recent market plummet and the weakening Indian rupee.
Trump’s promises to reduce capital gains taxes and incentivise domestic manufacturing through tax holidays have already created a ripple effect in global markets. This has led to a significant flight of foreign institutional investments (FIIs) from emerging markets, including India. For instance, after selling equity worth Rs 1.14 lakh crore in October, FIIs offloaded an additional Rs 42,000 crore in November, signaling their pivot toward the anticipated boom in US markets.
The prospect of an American manufacturing resurgence has strengthened the US dollar, exerting depreciation pressure on the Indian rupee. A weaker rupee against the dollar has far-reaching implications for India. Import heavy industries such as oil, electronics, and pharmaceuticals face increased costs compounding inflationary risks for the economy. This currency fluctuation also diminishes India’s global purchasing power, further widening its trade deficit and straining its economic resilience.
The heavy FII sell-off, combined with currency depreciation and inflationary pressures, can further destabilise Indian markets. This bearish sentiment risks dragging down stock indices, undermining investor confidence and slowing economic recovery post-pandemic.
Trump’s second term is set to deepen global polarisation, demanding adaptability from leaders, businesses, and institutions alike. As alliances face strain and markets become more unpredictable, India holds a unique opportunity to assert itself as a stabilizing force. The rupee’s modest depreciation of just 3 percent against a strengthening dollar—highlighted in an SBI report—positions India favourably compared to other nations. By stabilising currency fluctuations and fostering economic growth, the Indian government can secure its role as a leading alternative manufacturing hub, working alongside ASEAN to capitalise on shifting global supply chains.
For businesses, strategic sectoral diversification will be key. With heightened trade disruptions and protectionist measures likely to persist, companies must pivot toward regional partnerships and emerging markets like India and Southeast Asia. Meanwhile, global institutions such as the WTO and IMF would also double down on promoting a rules-based international order, one that seems more broken now, as unilateral, ad hoc protectionist policies test the limits of global economic cooperation.
(Deepanshu Mohan is a Professor of Economics, Dean, IDEAS, Office of Inter-Disciplinary Studies, and Director of Centre for New Economics Studies (CNES), OP Jindal Global University. He is a Visiting Professor at the London School of Economics, and a 2024 Fall Academic Visitor to the Faculty of Asian and Middle Eastern Studies, University of Oxford. Sarthak Ojha and Ankur Singh are Research Assistants with Centre for New Economics Studies (CNES) and members of the InfoSphere team. This is an opinion article, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)