We are living in tumultuous times for the global economy. The rules that have governed global trade since the end of the Second World War, first in the market economies of the Global North and Global South and, then following the demise of the Soviet bloc in the entire world, are effectively dead. The era of “free trade” (as it was defined by the US and its allies) ended on “Liberation Day” on April 2 when US President Donald Trump arbitrarily drew up a new regime of import tariffs or customs duties that America would henceforth impose on all imports. Trump’s flip-flops since then – now exempting some sectors from tariffs, now increasing rates for China, then pausing implementation – do not matter. The world’s biggest economy is struggling to retain its global hegemony. Domestically it is struggling to deal with the widening inequality that has brought a billionaire to office on the promise that he will bring hope to those disappointed by the American Dream. In this situation, it is difficult to see the US going back to what it used to lecture to the world for decades as “free trade”, built on a platform of low tariffs that all countries were expected to move towards. International trade brings with it specialisation and efficiency – and with that prosperity. This has been the dominant view in international trade policy, which has its underpinnings in mainstream economics. The intellectual justification goes back more than two centuries to 1818 when David Ricardo, the British political economist, formulated what every student of economics knows as the theory of international trade, or comparative advantage. Countries are better off specialising in what they produce more efficiently than others; countries should trade in these goods; there should be no tariffs or barriers to international trade; and there should be no protection to domestic industry. This became orthodoxy during the second half of the 20th century and for decades has been projected as a universal truth, driving global trade diplomacy the past 75 years. Ricardo’s theory was described by 20th century Nobel Laureate Paul Samuelson as an “evident but non-trivial concept”. Except that it was a political concept in the 19th century and it has been so in recent decades as well. Ricardo put forward his theory to argue against England’s Corn Laws that kept out food imports. This kept food prices high and benefited the landed gentry. But it also threatened to push up wages of workers in the nascent manufacturing sector, thereby holding back the Industrial Revolution. Ricardo’s theory was a political argument to break the power of landlords and strengthen the hands of industry. Two centuries later, it was politics again as the US and its allies among the developed economies used the same arguments and the instrument of first the General Agreement on Tariffs and Trade in 1948 and then the successor World Trade Organisation during the apogee of globalisation to beat down tariffs and remove all barriers to its exports. The US and other advanced economies too reduced their barriers – other than where they wanted to protect their interests, most notably in agriculture. Indeed, ever since the Industrial Revolution began, today’s advanced economies have been selective in their implementation of free trade. Britain occasionally resorted to import tariffs to protect its domestic industry, so did Germany, so did France, and so did the US. Later Japan, and then South Korea too adopted what came to be called “infant industry” protection, promoting select industries behind tariff walls until they were ready to face competition in world markets. Most developing countries too have done so, only to be berated by the global intellectual and policy regimes and institutions like the World Bank and International Monetary Fund for following “inefficient” policies. The free trade argument has been used whenever convenient to expand foreign markets. On other occasions it has been abandoned when these countries want to protect domestic industry. The US, which until barely two decades ago was using GATT/WTO to make other countries reduce tariffs, remove non-tariff barriers and create new markets in all countries (in the process killing or stifling many domestic enterprises), has decided to change tack. The old rules are seen to be harming US interests. Economist Samuelson himself in one of his last pieces of work in the early 2000s warned that competitive goods and services from China and India would hurt US workers. When the shoe is on the other foot, it sure hurts. The intellectual packaging of the new policies of the US has been made by Stephen Miran, the chairman of the Council of Economic Advisors. The rest of the world has benefited from the US security umbrella and it should now pay for these “public goods” Washington provides (so the argument goes, caring not a bit for the people of Vietnam, Iraq, Palestine, and elsewhere in the world who for decades have suffered US wars). The US dollar, which is under threat of losing its status as a global reserve currency, must retain its supremacy. The new policies also aim to prompt the rest of the world to continue to invest in US Treasury bonds “indefinitely”, argues Miran. Any attempt to threaten dollar supremacy will be snuffed out – as Trump threatened to do to the BRICs countries. Tariffs, the Trump administration believes, will bring in revenue that could reduce the country’s national debt. The US now sees high tariffs as the only way to revive manufacturing to return jobs and decent incomes to a vast section of Americans who have been on the losing side of globalisation. Whether that can ever happen and whether any Americans will work for the low wages necessary to produce quality goods at cheap prices that the American consumers are used to, is a different matter. The economic upheavals the US is causing are part of a wider set of upheavals in American society and politics. From afar, it looks like American society is being pulled apart one day at a time and in a manner eerily similar to what has been happening in India since 2014 – except that the pace there is faster. The Trump presidency is targeting undocumented immigrants and naturalised citizens, using a cannonball against government services, promoting the destruction of the environment, targeting the media, lawyers, the judiciary, and universities and showing thinly disguised racism and misogyny. Decades-old institutions and processes are being ripped apart, with scant regard for the rule of law. The fault lines of democracy are showing in the world’s most powerful democracy – mirroring the fault lines that have shown up for a decade in the world’s largest democracy. At home and abroad, the declining American empire is flailing as it struggles to find new feet. Despite this, the US remains the world’s biggest economy. Its tech bro-oligarchy is becoming stronger by the day and finance, which has caused so much damage to the US economy and has been preferred to manufacturing by presidents Republican and Democrats alike, is forever enriching itself. (The Financial Times reported earlier this month that the disorder and volatility of Trump 2.0 has benefited Wall Street: it earned a record $57 billion in profits in the first quarter of 2025, the highest in five years. Some MAGA this is). How does India respond in these very uncertain times where the decades-long rules for trade in manufacturing are being jettisoned? It is time that India begins to think differently, since the restrictions of the World Trade Organization and the ideas of so-called free trade are no longer relevant. We need an industrial policy to guide domestic industry, much like today’s developed countries themselves followed earlier. We need a clear plan of the kind of industries to support, the kind of support the government can give, the time frame for such support, a focus on employment potential, a well-defined push to research and development– all with an emphasis on the domestic market, even as we promote particular industries for exports. It is also time that the government ends the unstated policy of trying to build national champions by bestowing favours on its cronies. Japan and South Korea did so, but differently and in another era. India has only ended up promoting uncompetitive practices and fear among businesses not favoured. On exports, India may be better off pushing exports of services. This is the sector that has been holding up export income the past decade to the extent it can, while exports of manufactures have done poorly. Services are for now at least not in the cross-hairs of the US. We do not have to turn autarkic and we should certainly not follow the ill-thought out policies of “atmanirbhar”, designed only to benefit favourites of the government. But it is foolish to now offer to the US to slash import duties and further open up in the hope that we can retain access to the American market. There are many in India too who make this suggestion and there are hints that the negotiations that are going on behind doors are on these lines. We are offering ourselves to the US and we even refuse to sign on to a statement of support for multilateralism in trade diplomacy because we are worried about antagonising the US. India, with the promise of its large domestic market, will gain more by working out balanced agreements within BRICS, with the European Union and the Association of Southeast Asian Nations, alongside pursuing an independent industrial policy designed to revive Indian manufacturing. These times of upheaval need fresh thinking not a recycling of old ideas that other countries are abandoning. C Rammanohar Reddy is the Editor of The India Forum.