Beyond dollar dominance: India’s strategic pivot in a tariff-ridden global trade landscape

For decades now, global trade has been governed by an archetype developed by a few major economies, most notably the United States and its hegemony over the dollar-based system. However, as new economies emerge, supply chain networks shift, and digital commerce alters transactions, the tides of commerce are shifting. The future of global trade now demands a more inclusive, multipolar framework, one that India is well positioned to shape. However, the question remains: How will India navigate the complexity of tariffs while pursuing its de-dollarization strategy?

The Changing Global Trade Order

Recent geopolitical shifts, trade wars, and economic disruptions have put a stress on the traditional, dollar-dominated trade system. President Trump's approach of imposing sweeping tariffs signals this change, as evidenced by his recent announcement of a 10% universal tariff on all imports, with higher rates for certain countries, including a 26% tariff on Indian goods. This most recent step, which is indicative of a larger movement away from unilateral trade practices, underlines his administration's commitment to a more transactional trade policy.

India has a vital role to play in this new order, driven by its ambitions to reduce dependence on the U.S. dollar and create more resilient, localized trade networks. One of India’s primary goal at present is to de-dollarize or reduce reliance on the U.S. dollar for international trade. But how do the newly announced tariffs factor into this vision?

De-Dollarization - A Long-Term Goal, But Not Without Challenges

India's de-dollarization strategy has been gaining momentum in recent years. Through initiatives like the rupee trade settlement mechanism, India has been pushing for bilateral trade agreements that minimize the reliance on the U.S. dollar. Countries like Russia, the UAE, and several South Asian nations have joined India in experimenting with local currencies for trade, signalling a shift away from the dollar.

However, the recent imposition of tariffs by the U.S. introduces a new layer of complexity. The decision could place significant pressure on Indian exports, making them more expensive in the U.S. market. This economic friction might undermine the competitiveness of Indian goods, hindering the success of alternative payment systems like the rupee trade mechanism.

Tariffs and India’s Response - Navigating Short-Term Pressures

India's gems and jewellery sector exemplifies the impact of the new tariffs, with exports to the U.S. expected to decline as prices rise for American consumers.

Yet, India is not reacting impulsively. The Indian government's strategic and measured response shows a commitment to long-term trade resilience. Initiatives like the India-UAE CEPA and ongoing trade talks with the EU and UK highlight India’s effort to diversify its markets and reduce reliance on traditional Western norms. India’s participation in frameworks like the Indo-Pacific Economic Framework (IPEF) further demonstrates its focus on shaping a more equitable global trade system.

The Digital Edge – Empowering India’s Trade Future

India is a leader in digital payments and fintech, thanks to platforms like UPI, which supports seamless cross-border transactions. The Open Network for Digital Commerce (ONDC) aims to democratize e-commerce and reduce the dominance of major global platforms.

India’s digital infrastructure could become a key lever in transforming global trade flows. These advancements not only enhance convenience but also support the rupee's international acceptance by allowing trade outside traditional banking channels, particularly important amid rising tariffs.

Supply Chain Resilience - A New Manufacturing Hub

In parallel to its digital trade aspirations, India is also positioning itself as a manufacturing hub. The Production-Linked Incentive (PLI) schemes, coupled with substantial infrastructure investments, are designed to make India a global manufacturing powerhouse. These efforts have already attracted global interest, from semiconductor manufacturing to electric vehicles and pharmaceuticals.

The India-Middle East-Europe Economic Corridor (IMEC) is central to this shift, offering an alternative to traditional supply chain choke points. By building strategic routes and partnerships, India is reducing its vulnerability to external disruptions, including tariff-related volatility.

India’s Diplomatic Leverage - A Pragmatic Foreign Policy

India’s strength also lies in its diplomatic agility. Rather than adopting isolationist or protectionist stances, India has embraced a pragmatic, non-aligned foreign policy—engaging effectively with both developed and developing economies. Its role in expanding BRICS and calling for greater representation of emerging economies underscores its ability to shape a fairer global trade system.

Looking Ahead - Seizing the Opportunity Amidst Trade Disruptions

The global economy is undergoing a reset. Tariffs and protectionism pose real challenges—but they also offer countries like India a chance to lead.

This shift puts India in a unique spot. For years, high tariffs acted like a safety net for our domestic industries—often protecting big business from real global competition. But now, with mounting pressure to bring those tariffs down, Indian companies will have to step up. They’ll need to focus on better quality, smarter innovation, and real efficiency if they want to compete. For consumers, that’s a win, more access to international products at fair prices. But it won’t all be smooth sailing. Indian exporters, especially the smaller ones who already work on tight margins, could take a hit, particularly in the U.S. market.

Key steps for India to continue its de-dollarization and trade leadership:

1.       Expand rupee-based trade settlements to reduce dependence on the dollar and enhance currency sovereignty.

2.       Accelerate free trade agreements with key partners, focusing on equitable terms rather than reactionary tariffs.

3.       Lead in digital trade regulation, setting global standards for AI-driven commerce, fintech solutions, and cross-border digital transactions.

4.       Reinforce supply chain resilience, positioning India as a preferred manufacturing destination for high-value industries.

5.       Use diplomatic leverage to craft a trade order that serves the interests of both developed and emerging economies, ensuring that India's voice is heard on the global stage.

India stands at the threshold of an exciting opportunity—one that is both challenging and full of potential. These new tariffs should not be seen as obstacles but as catalysts for India to accelerate its path towards de-dollarization and global trade leadership. The 21st century will not be defined by a single dominant economy but by collaborative frameworks that prioritize shared prosperity. India is uniquely positioned to lead this transformation, providing the balance between tradition and innovation, protectionism and open markets, local currencies and global trade.

The question is not whether India will play a role in shaping the future of global trade. The question is how boldly it will seize the moment and lead the charge.

Views are personal. The author is the Chairman and Managing Director of Apollo International Group