1. Context: Breakdown of the Liberal Global Trade Order
Recent remarks by the U.S. President linking India’s oil import decisions to the threat of tariffs illustrate a transactional, power-centric approach to international trade. This signals not merely bilateral pressure tactics, but a deeper erosion of the political system that governed global trade since the mid-20th century.
Globalisation was not only about free movement of goods and services; it was a political arrangement that shaped how states managed markets, societies, and international cooperation through multilateral institutions. It drew legitimacy from norms of restraint, predictability, and shared rules.
This system came to be associated with liberal values such as democracy, cooperation, and institutionalised dispute resolution. The abandonment of these norms reflects a structural shift rather than a temporary disruption.
If this context is ignored, policy responses risk being framed as episodic trade disputes rather than as symptoms of a systemic transition in global governance.
“What is broken is not just global trade, but the political system that governs it.” — Editorial Observation
Global trade outcomes are inseparable from the political norms that structure state behaviour.
2. Return of Mercantilism as the Dominant Trade Logic
The emerging order reflects a revival of mercantilism, where trade is viewed as an instrument of state power, with surpluses equated to strength and deficits to vulnerability. This contrasts sharply with the liberal assumption of mutual gains from trade.
In this framework, economic decisions are subordinated to geopolitical objectives. Tariffs, sanctions, and supply chain controls are deployed openly to coerce behaviour rather than to correct market failures.
Such an approach reshapes bilateral negotiations into zero-sum contests, eroding trust and predictability in international economic relations.
If unchecked, mercantilism risks fragmenting global markets into rival blocs, increasing costs for developing economies.
“Trade is not about goods crossing borders; it is about power crossing borders.” — Dani Rodrik
Mercantilism prioritises sovereignty and control over efficiency and cooperation.
3. Historical Evolution: From Force to Norm-Based Globalisation
The global economy was interconnected long before it became liberal. Early globalisation was built on coercion and unequal exchange, with wealth accumulation in industrialised countries relying on domestic and overseas resource extraction.
After the devastation of global wars and the spread of sovereignty in the mid-20th century, a new order emerged. Multilateral institutions were created to provide a normative framework for managing international affairs.
Even when powerful states acted unilaterally, actions were justified through the language of democracy, stability, or humanitarianism. The legitimacy of the system rested on this restraint.
The open abandonment of such restraint marks a decisive rupture with the post-war order.
Norms matter in global governance because they limit the arbitrary use of power.
4. Political Assumptions Underpinning Liberal Globalisation
The post-war global system rested on key political assumptions: open markets, free movement of capital (but not people), enforceable cross-border contracts, and negotiated management of shared resources.
For several decades, these assumptions appeared viable as many countries experienced growth and poverty reduction. Multilateralism seemed mutually beneficial.
However, these assumptions were fragile and dependent on sustained political consent within societies.
When domestic support erodes, the external architecture of globalisation weakens rapidly.
Economic integration cannot survive without political legitimacy.
5. Unintended Consequence I: Inequality and Populist Backlash
One unintended outcome of deep global integration was the disproportionate rise in returns to capital compared to wages. Manufacturing declined in some regions and concentrated in others, intensifying economic insecurity.
Migration pressures increased as labour sought opportunities across borders, while capital moved freely. These asymmetries created fertile ground for populist politics in advanced economies.
Populism reframed global cooperation as a threat to national sovereignty and employment, turning societies inward-looking.
If inequality is not addressed, global openness becomes politically unsustainable.
“Globalisation’s losers eventually get a vote.” — Joseph Stiglitz
Distributional outcomes shape the political viability of economic systems.
6. Unintended Consequence II: The Rise of China
The rise of China fundamentally altered the geopolitical foundations of the post-colonial order. China integrated into global markets while retaining strong state control over capital, labour, and information.
It benefited from access to global supply chains and technology without fully complying with multilateral norms. Its persistent trade surplus reflects a model driven by excess capacity and external demand.
This strategy constrained industrial ambitions in poorer countries, including India, while enabling China to accumulate economic and political power.
China’s trajectory presented an alternative model of growth and governance, weakening the ideological coherence of liberal globalisation.
Asymmetric integration undermines trust in rule-based systems.
7. Retreat from Global Cooperation and Its Developmental Costs
As major economies reassessed globalisation, cooperation increasingly came to be viewed as an opportunity cost. Sovereignty assertions intensified through industrial policy, migration controls, and strategic trade barriers.
International aid has become conditional on donor national interests. With multilateral institutions weakening, developing countries’ ability to negotiate collectively on issues like climate change and illicit financial flows has diminished.
This shift disproportionately affects poorer nations that relied on global cooperation to amplify their bargaining power.
Ignoring this trend risks leaving developing countries isolated in a fragmented world order.
“Multilateralism is not charity; it is enlightened self-interest.” — António Guterres
Weak multilateralism raises the cost of development for weaker states.
8. India’s Position in the Emerging Order
India occupies an ambiguous position: too large to ignore, yet too poor to shape outcomes decisively. Over the last 15 years, it has failed to fully convert its demographic advantage into productive capacity.
Economic growth has been uneven, sharpening social stratification and limiting broad-based empowerment. This constrains India’s ability to respond strategically to a mercantilist world.
In such an order, low state capacity translates into long-term irrelevance rather than strategic autonomy.
Size without capability does not translate into influence.
9. Domains of Potential Strength and Structural Constraints
India retains potential in selected domains such as digital public infrastructure, renewable energy, services, and democratic decentralisation. These areas could offer strategic relevance in the new global order.
However, realising this potential requires sustained public investment in health and education to broaden the productive base. Growth without social investment weakens state capacity.
Without institutional strengthening and social cohesion, strategic aspirations risk remaining rhetorical.
“A nation’s strength ultimately rests on the health, education, and productivity of its people.” — Amartya Sen
State capability is the foundation of strategic autonomy.
Conclusion
The transition from liberal globalisation to a mercantilist world order marks a structural shift in global governance. For India, navigating this environment requires strengthening state capacity, investing in human development, and building social cohesion. Without these foundations, claims of global leadership will lack economic substance and institutional credibility in an increasingly power-driven international system.
