Steel Walls, Fragile Ties: Rationalising Trump’s tariffs and their implications

Writer: Shyan Sahdev, UG2025

Editor: Samarveer Singh

Donald Trump’s tariff obsession marks one of the most dramatic shifts in US trade policy as the president now sets them at the highest rate in over a century. The movement began in early 2025 when a blanket 10% tariff on all imports was imposed, escalating to 50% for certain countries such as China and India. The stated ambition domestically has been explicit: to revive American industry and rebalance trade deficits. Trump promises bringing jobs and manufacturing back in America, but beyond the rhetoric, what truly drives these tariffs? Is it the surging rise of China and India and Trump asking the world to play fair? And how will the American consumers and producers, and the world at large, be affected? In essence, what is life like in this increasingly de-globalised world?

The answers remain few and far as a game of geopolitics unfolds, but there is merit in analysing the immediate implications explored. And what we see, then, is that the domestic cost may end up being too expensive a gamble at the cost of an average American.

The domestic rationale: an incomplete picture

The Trump administration frames tariffs as a three-pronged spear to confront long-standing issues: persistent trade deficits, a hollowing out of American manufacturing, and threats to ‘national security’.

As figure 1 illustrates, the affair unraveled when the White House declared a “national emergency” in April 2025, citing unfair trade practices and domestic industrial erosion. Tariffs, then, were pitched as a way to generate government revenue, compel “Made in America” purchasing, and protect jobs that have shifted overseas.

Figure 1: US Average Tariff Rate, source: J.P. Morgan Global Economics Using basket weights.

While it remains in character to motivate such a policy politically, the economic reality may make this seem like a grave error. These tariffs are, also, effectively taxes on American importers and consumers, who ultimately pay the price. The Penn Wharton Budget Model forecasts up to a 6% reduction in US GDP and a 5% drop in wages, translating to a lifetime loss of approximately $22,000 for middle-income households. Although tariffs are expected to generate about $5.2 trillion in government revenue over the next decade, the lion’s share of the burden falls on US businesses and consumers, not foreign producers. Producers may exercise the possibility of export diversification, as they rush to the European market, despite suffering an initial shock. Simply put, the consequences cluster in America, translated into rising inflation and falling output. If the story feels incomplete, there might be answers in a drawn out game of geopolitics.

A Game of Geopolitical Chess?

If not the trifecta of domestically quoted motivations, a set of three countries may shed light on the isolationist stance: China, India and Russia.

If Trump’s tariffs were designed to stifle Chinese manufacturing, recent data suggests the effect has been anything but accomplished. While US-bound exports have sagged by double digits, Chinese industry has proven nimble: diversifying with a burst of shipments to Southeast Asia, Africa, and Europe. China is cleverly using this moment to assert its industrial prowess to allow the yuan greater flexibility against the dollar and its identity as the world’s reserve currency.

Figure 2: China, cross-border inbound payments, % of total

Thus, the People’s Bank of China has shown signs that this is a prime opportunity to pit the renminbi against the greenback, buffering exporters as Beijing’s stimulus packages keep domestic growth on target. A rising global surplus and new trade corridors suggest that China is weathering the storm, but its resilience has not yet translated into capitalising on an opportunity as the world’s reserve. There remain significant challenges on that front.

India: A Realignment of Ambitions

India’s resilience under escalating US tariffs has drawn global attention. Trump’s tariff hike is as much about pressuring New Delhi to “play fair” on global energy trade. In essence, curb its surging imports of Russian oil and avoid acting as a medium for Moscow’s exports.

To Trump’s disappointment, the Indian response has not been submissive. The country has doubled down on self-reliance, investing in production-linked incentives and recalibrating commerce toward eastward partners, especially China and Russia. The message on the diplomatic stage is becoming increasingly clear: the era of unquestioned Western alignment is over. Consider the recent trade deals and ongoing summits that reveal a pivot away from dependence on Western markets. Discomfort in Washington looms large as Prime Minister Modi attended the Shanghai Cooperation Organisation (SCO) Summit in Tianjin, sharing the stage with Chinese President Xi Jinping and Russian President Putin, where all three signaled deeper trilateral cooperation.

The Economics of the Tariffs on Foreign Countries

Sectors such as manufacturing and wholesale trade report declining profits, layoffs, and reduced investment. Job creation has slowed as companies grapple with higher input costs and regulatory uncertainty. Globally, countries like China and India have cushioned some impacts by diversifying markets, but key industries, including Indian textiles and China’s US-bound exports, face persistent disruptions. Indeed, Industry experts warn export volumes may collapse by as much as 70%, especially in labour-intensive categories like garments, bedsheets, and made-ups.

Disruptions at the Factory Gate: The Tariff Toll on Exporters

The immediate impact of Trump’s tariffs has been felt in the heart of export economies. Indian exports to the US plunged by 22% within months of tariff hikes, with declines spreading across categories in industries of textiles, gems, and even smartphones, despite some exemptions. Figure 3 depicts this impact, showcasing the composition of its export market.

Furthermore, export hubs, particularly those focused on labor-intensive sectors, now confront not only higher costs but also a sobering drop in demand. The result is layoffs and profit squeezes for manufacturers, imperilling thousands of jobs and motivating diversification away from the US market.

Figure 3: India's goods exports ($bn), by country

(Source: Ministry of Commerce and Industry, Global Trade Research Initiative, FT calculations • The year refers to the fiscal year ending in March. Data for FY2026 is projected by GTRI, factoring in the latest tariff rate effective since Aug 27 2025)

These sectors comprise nearly a fifth of India’s GDP and have shown the highest vulnerability. While US tariffs once shielded domestic industries, their escalation now risks eliminating India’s competitive edge in key segments as American buyers turn to alternatives like Vietnam and Mexico. These ripple effects could lead to up to a 0.8-1% drop in India’s GDP if trade tensions persist.

American Steel over Consumers?

Who stands to gain? In the near term, US steelmakers and commodity traders enjoy higher prices. Asian exporters outside the tariff’s blast radius, particularly in Vietnam, see surging orders. All while American consumers pay more, new suppliers struggle with bottlenecks, and global investors remain wary of fresh shocks ahead.

In the age of steel walls and fragile ties, America’s attempts to redraw the global order may only accelerate the cracks in its foundation. Indeed, closing down the trade deficit has strained American growth and given birth to a de-globalized world order with its winners and losers. Trump’s certainly placed a bold bet.