Protectionism in a warming world is a high-stakes leadership test for India
The world is facing two major shocks at the same time, record-breaking heat driven by climate change and a sharp retreat from global trade led by the US. Together, these shifts are reshaping economic and environmental realities, with direct consequences for India's growth, exports, and long-term development choices.
By Ann E. Harrison, Economist and former dean of the Haas School of Business
The year 2024 was the hottest in recorded history. Then came 2025, which marked the stunning US reversal away from a 75 year commitment to free trade. These twin challenges, rising temperatures and stagnating global trade—have tremendous consequences for the great nation of India. Let’s start with the global trading order.
Source: climate.gov
United States actions under Trump have reversed a policy of greater openness to trade that started 75 years ago, with the creation of the Global Agreement on Tariffs and Trade (GATT). Trump slapped 50 percent tariffs on India last August and raised average overall protection levels to 16.8 percent.
These US tariff levels are the highest since the 1930s.
The U.S. reversal means that the path towards prosperity for many developing nations may be blocked. Many economies, including China, Singapore, and South Korea--exported their way to wealth.
Today, the poorest countries account for only 1 percent of global world trade. China, blocked by U.S. tariffs, has redirected much of its exports elsewhere. Increasing competition from Chinese goods and a closing off of US markets together make it even more difficult for poorer countries to maintain global market share.
As if the U.S. move to protectionism was not enough, all countries must now adapt to rising temperatures that are creating hardship, failed harvests, and catastrophic weather events. Countries closer to the equator and with extensive shorelines are particularly exposed.
The twin disruption caused by U.S. protectionism and rising temperatures is a challenge for all countries, and India is no exception. US tariffs and geopolitical rivalries mean that global markets for Indian exports have become more uncertain.
Yet one positive development is that in 2025 India became a top destination for incoming foreign investment, as countries sought to secure their supply chains and avoid geopolitical tensions.
A winning path forward for India would consider three strategic imperatives. First, India’s enormous internal market gives it a great advantage relative to the rest of the world. Further harnessing the power of competition across Indian states can do much to make up for the stagnation in global trade.
My research with Nobel Prize winner Philippe Aghion shows that China’s fierce domestic competition played a key role in making industrial policy work, and in creating global manufacturing giants. India needs to continue the process of dismantling domestic impediments to healthy market competition.
Second, the enormous challenges of climate change cannot be ignored. Mitigating the most severe effects will require massive investments.
To be effective, history teaches us that these investments must promote competition and avoid protectionism. To stop the globe from warming beyond the critical 1.5 C threshold, these investments are needed right now.
The consequences for productivity, health, biodiversity, and the very survival of the planet are at stake.
Third, India needs to accelerate its global leadership in helping other emerging markets find a way forward. Open up markets. Invest in the green transition. Speak out. As the world’s largest democratic powerhouse, India must take over where the U.S. has fallen behind.