Context:

• No one can definitively predict the outcomes of the Trump Tariffs (TT). The tariffs are less about correcting trade deficits and more about countering China’s hegemonic ambitions.
• These developments open up a strategic window of opportunity for India to push forward long-stalled economic reforms.

China’s Long Game - Mercantilism as a Strategic Tool:

• China’s goal/ grand strategy is to dethrone the US as the global economic hegemon, as outlined in Rush Doshi's (The Long Game: China’s Grand Strategy to Displace American Order).
• Mercantilist policies have been key: promoting exports, restricting imports, and building reserves.
• From 4% in 1996, China’s share in global manufactured goods exports (MGE) has risen to 30%, overtaking the US.
• On every criterion (especially on the mercantilist indicators), China holds the world record for the level and the length of time it has maintained mercantilist policies.

US Response - Bipartisan Consensus and Continuity Across Administrations:

• Bipartisan policy: Contrary to expectations, President Biden continued and intensified Trump’s China policy/ containment strategy.
• Anti-China tariffs: April 2, 2025 (“Liberation Day”) saw universal (10%) tariffs imposed, with a 125% tariff specifically targeting China.

India’s Political Economy - Structural Resistance to Reform:

• India has grown at 6.2% per year for the past 33 years.
• India’s economic policies remain stagnant due to political risk aversion, divided opposition, and rent-seeking elites.
• Economic reforms (like farm laws) face strong resistance unlike non-economic reforms which are politically safer.

Implication for India:

• FDI has fallen: From a level of 2-2.5% of GDP for the past two decades, FDI has fallen to less than 1% - the same level as in the late 1990s.
• What killed FDI?
  • This is due to a 2015 model bilateral investment treaty (BIT) that discouraged foreign investors.
  • It required that if the two firms (one domestic and one foreign) wanted to divorce, they would have to go to an Indian court for the terms of disengagement.

A Missed Window of Opportunity:

• In 2010, post the great financial crisis, China decided to move up the value chain, leaving the manufacturing of lower-valued manufactured goods to other countries (Bangladesh, India, Mexico and Vietnam).
• Other countries accepted the challenge, but India failed to capitalize on the opportunity.

Winds of Change - An External Push Toward Reform:

• The Trump tariffs serve as an exogenous shock: Allowing India to push reforms with plausible deniability.
• Demographic dividend: India is seen by the West as a strategic counterweight to China, especially with a rising educated and AI-capable workforce.

The Strategic Choice - Comfort vs. Growth:

• GDP growth acceleration: India must choose between a safe 6.2% growth or a transformational 7.5-8.5% growth through reforms.
• Deep deregulation and trade openness: Key policy changes needed - liberalize trade, attract FDI, dismantle regulatory hurdles.

The Path Ahead - A Second 1991 Moment for India:

• India-US Bilateral Trade Agreement expected soon, potentially paving the way for deals with the UK and EU.
• A new era of economic reform - comparable to the 1991 liberalization - may be imminent.

Conclusion:

• India stands at a crossroads. With geopolitical shifts aligning in its favor and structural bottlenecks ready to be tackled, the country has a rare chance to undertake long-overdue reforms.
• The choice lies between continuing with economic "comfort" or seizing the moment to transform into a true global manufacturing and investment hub.