Mains Practice Questions

Introduction

In 2025, the U.S. imposed tariffs on Indian imports, citing India’s continued purchases of Russian oil despite Western sanctions. This move marked a significant escalation in the use of tariffs as geopolitical tools rather than mere economic instruments. 

Body: 

Evolution of Tariffs: From Economic Shields to Geopolitical Weapons

• Economic Shields: 
  • Protection of Domestic Industries: Historically, tariffs protect domestic industries, controlled imports, and generated government revenue. 
  • Revenue Generation for Governments: Tariffs have traditionally served as a key source of fiscal revenue, especially for developing economies with limited taxation infrastructure.
  • Balancing Trade Deficits: Tariffs help reduce trade imbalances by making imports more expensive, encouraging domestic consumption of local goods.
• Geopolitical Weapons:
  • Political Leverage: Tariffs now serve as tools to coerce countries into aligning with broader foreign policy goals, e.g., U.S. tariffs on steel and aluminum to safeguard national security while pressuring allies.
  • Influence on Supply Chains: Tariffs can disrupt global supply chains, creating dependency or leverage over key sectors. 
    • For instance, China’s rare-earth export restrictions on Japan in 2010 influenced Japan’s trade and technological policies.
  • Instrument of Sanctions:Tariffs often replace or supplement economic sanctions. The U.S. targeting India’s exports amid geopolitical disputes is a contemporary example of such weaponization.

Economic and Strategic Implication: Indian Context 

• Economic Implications: 
  • Potential Decline in Exports:The U.S. tariff will directly affect around 10% of India’s total exports to the U.S., impacting approximately $87 billion worth of goods annually, with pharmaceuticals, textiles, and engineering sectors facing the greatest strain.
  • Inflationary Pressures: Tariffs increase costs for Indian exporters and importers, potentially leading to domestic price hikes in sectors reliant on U.S. markets.
  • Diversification of Markets: The pressure has pushed India to explore alternative markets, like Africa, Latin America, and ASEAN.
  • Impact on Startups & MSMEs – Small and medium enterprises, which rely heavily on exports, may face liquidity crunches and job losses. For instance, Indian textile MSMEs exporting to the U.S. might downsize due to tariff shocks.
  • Encouragement of Self-Reliance: Tariffs incentivize ‘Make in India’ and Atma Nirbhar Bharat initiatives and domestic value addition, reducing dependency on imports while enhancing industrial capacity.
• Strategic Implications: 
  • Closer India-Russia-China Engagement: The tariff issue has accelerated India’s engagement with Russia and China, as seen during the 2025 SCO summit, reshaping regional alliances and signaling a multipolar strategic alignment.
  • Preservation of Strategic Autonomy: India’s stance on energy imports and foreign policy demonstrates a commitment to independent decision-making, signaling that external economic coercion will not dictate national choices.
    

Conclusion: 

Tariffs today are more than tools of commerce—they have become instruments that influence international relationships and strategic choices. “A tariff is never just a tax on trade, it is a signal of power, a test of alliances, and a lever in the contest of nations.” For India, such measures present both challenges and opportunities, pushing the country to diversify markets and strengthen its global partnerships.