Economic resilience in a fragmented trade order

Hindustan Times

23-04-2025

In an era marked by intensifying global trade tensions, the resurgence of tariff wars has emerged as a formidable challenge for nations striving to safeguard their economic interests. The imposition of sweeping tariffs by major economies most notably by the US under President Donald Trump has disrupted established trade relationships and compelled governments to reevaluate their strategic approaches. In particular, the recent escalation of tariffs, such as a 145% duty on Chinese goods and significant levies on imports from the EU, Japan, and other major economies, reflects a marked shift from multilateralism to protectionism. This trend has had profound implications for global trade, compelling countries to adopt a variety of countermeasures to insulate their economies from external shocks.
The World Trade Organization (WTO) has projected an 80% decline in the US-China merchandise trade for 2025, exemplifying the fragmentation of global trade into distinct blocs. In light of this development, individual States are recalibrating their trade and economic policies to buffer themselves against the cascading effects of a divided commercial order. Each country's response reflects a unique blend of financial priorities, geopolitical calculations, and structural vulnerabilities.
China, at the forefront of global commerce, has borne the brunt of US tariff escalation. In response, Beijing has imposed reciprocal duties on American goods while actively diversifying its trading partners. A significant uptick in regional engagement has followed, with China-Association of South East Asian Nations (ASEAN) trade reaching $234 billion in the first quarter of 2025. This strategic realignment signifies China's intent to reduce dependence on western markets and reinforce intra-Asian trade.
The EU, although not directly retaliatory, faces a critical challenge stemming from potential market flooding due to diverted Chinese exports, particularly in oversupplied sectors such as solar energy. With a recorded trade deficit of €304.5 billion ($347 billion) with China in 2024, the EU is pursuing diplomatic dialogue to manage the redirection of Chinese products and safeguard domestic industries. This proactive monitoring approach illustrates the EU's preference for negotiation over confrontation.
Japan, a traditionally export-driven economy, is experiencing notable vulnerabilities. Economists estimate that new US tariffs could suppress Japanese GDP growth by as much as 0.8%. Financial markets have responded accordingly, with the Nikkei index experiencing a 9% decline in a single day underscoring investor anxieties. In reaction, Tokyo is seeking tariff reductions through diplomatic channels while preparing domestic stimulus packages to bolster consumption and investment.
India has adopted a precautionary diplomatic stance. The Indian government is actively negotiating a comprehensive trade agreement with the US, seeking to double bilateral trade to $500 billion by 2030. In addition, India has expressed readiness to reduce tariffs on over 50% of its US imports, valued at $41.8 billion in 2024. This balanced strategy signals India's intention to maintain robust trade ties while avoiding any entanglement in broader protectionist disputes.
Russia's position in the current tariff war is uniquely shaped by its pre-existing detachment from western markets due to sanctions. Nonetheless, Moscow has voiced concern over global trade instability and is pursuing market diversification to preempt secondary shocks. Its focus on regional trade blocs and bilateral agreements highlights the strategic importance of economic self-sufficiency in times of global upheaval.
Brazil's situation is nuanced; while it faces a relatively modest 10% tariff on exports to the US, this action has triggered a broader reassessment of trade policy. The Brazilian government is considering legislation to enable reciprocal trade actions and protect domestic industries. Simultaneously, economists suggest Brazil might benefit from the realignment of global supply chains, particularly if it can position itself as a neutral intermediary between feuding trade blocs.
South Korea's response has been both anticipatory and corrective. The government has proposed a supplementary budget of 12.2 trillion won ($8.6 billion) to stabilise industries vulnerable to external shocks. Notably, Seoul is also cooperating with Washington to investigate fraudulent practices involving the mislabelling of Chinese products as Korean exports. This underscores South Korea's commitment to transparent trade practices while safeguarding its market access privileges.
Turkey, impacted by baseline 10% tariffs, is managing the crisis through a combination of regulatory oversight and economic agility. The Turkish government has declared its intent to resist becoming a dumping ground for excess global production and has indicated it will employ all tools available under international law to defend its economic sovereignty. Concurrently, Turkish industries are seeking to exploit new market openings created by shifting trade patterns.
Smaller but strategically positioned economies such as Thailand and Taiwan have implemented targeted adaptations. Thailand, burdened by a 36% US tariff, is actively pursuing 'friend-shoring' alliances to maintain competitive access to global markets. Taiwan, meanwhile, has invested $100 billion in US-based semiconductor facilities, which has facilitated exemptions for its chip exports, an example of how direct foreign investment can yield strategic trade advantages.
The ongoing tariff war has also catalysed broader macroeconomic consequences, particularly in global capital flows. A growing trend of divestment from US assets termed the 'sell America trade' is evident in declining demand for US equities and treasury bonds. Investors, spooked by policy uncertainty, are reallocating resources to more stable currencies such as the euro, pound, and Australian dollar. This flight to safety has implications not only for US financial markets but also for global economic stability.
The contemporary tariff war has illuminated the resilience and vulnerabilities of national economies in a rapidly shifting trade environment. From retaliatory tariffs and investment diversification to strategic diplomacy and institutional strengthening, countries are deploying a broad spectrum of tools to mitigate economic dislocation. While the long-term effects of these measures remain to be seen, what is clear is that global economic governance is entering a new phase characterised by complexity, adaptability, and the recalibration of traditional trade alliances. The necessity of multilateral dialogue and policy innovation has never been more critical in navigating the uncertainties of this evolving global order.
This article is authored by Gunwant Singh, scholar, international relations and security studies, Jawaharlal Nehru University, New Delhi.