Deliberate use of economic tools to achieve foreign policy or national security objectives, such as forcing a country to stop hostilities with third parties or open its markets, has grown rapidly in the past few years, the Economic Survey of India 2025-26 said on Thursday amid obstacles caused by US trade policy.
This comes amid disruptions caused by US trade policies. (AP)The economic survey, which reflects the finance ministry’s view on the state of the economy, cited the tariffs imposed by the Trump administration on trading partners around the world as the “most disruptive” rise experienced by the global economy in the past year and said the global economic environment remained uncertain due to geopolitical disruptions and trade tensions.
In a section on India’s need to re-emerge as “economic statecraft” and achieve “strategic resilience and imperatives”, the Economic Survey said the shift reflects growing geopolitical competition, concerns over technological dominance and weakness in traditional value chains. As the report notes, economic statecraft are tools used to achieve foreign policy or national security goals, “such as forcing a country to stop hostilities with third parties or liberalize its markets”.
President Donald Trump hit Indian exports with an unprecedented 50% tariff last year, along with a 25% punitive tariff on Russian oil purchases as part of his efforts to end the war in Ukraine, which has led to a strain in India-US relations not seen in nearly two decades. Indian officials have said the two sides have made “very significant” progress in talks for a bilateral trade deal, even as the Trump administration has repeatedly pushed to open up India’s farm and dairy sectors – what New Delhi has described as a “red line”.
Influenced more by geopolitical considerations than in 2010, the report notes that traditional economic assessments need to be supplemented by factoring in “rapidly evolving country alignments and supply chains” and technological developments.
The study notes that economic statecraft can manifest as “carrots” or “sticks” and lists several tools of trade, capital, and technology used by both the United States and China to constrain the strategic military and civilian capabilities of rival states. These include U.S. export controls on key technologies such as semiconductors and manufacturing equipment to limit China’s access to next-generation AI and chip technology, and China’s export ban on key minerals and permanent magnet materials needed for defense, electronics and energy transitions, such as restrictions on exports 2-0 in early 2020. Japan
India’s automobile industry was among those hit last year by China’s tightening of export licenses and controls on rare earth materials, and New Delhi formally raised the issue with Beijing, leading to the easing of some restrictions.
The report notes that Chinese authorities have added foreign defense and technology companies to “lists of untrustworthy entities,” restricting trade and investment in response to perceived national security threats, while Western countries have used sanctions against Russian firms to constrict war-related supply chains.
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The report lists tariffs as another tool of economic statecraft, such as the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) or tariffs on carbon-intensive imports such as steel and cement that target high-polluting exporters such as China and India, and protect European industry while achieving climate goals.
Fiscal policy has also become a tool of economic statecraft, and depends on “the extent to which fiscal deficits can be expanded and financed during geopolitical crises”. The report notes that China continues to use its financial power to build infrastructure in other countries through its “Belt and Road Initiative, aiming to increase its trade and economic dominance”.
The economic survey noted that economic interdependence, once a source of mutual stability, is increasingly seen as a “channel of disease” and disruptions during the Covid-19 pandemic, the weaponization of power and finance during geopolitical conflicts, and the growing use of high-tech export controls have revealed global efficiency constraints. Both developed and emerging economies are reassessing exposure to centralized supply chains, critical raw materials and key technologies on security grounds, the report said.
The report lists several drivers behind the resurgence of economic statecraft, Such as the resurgence of ultra-nationalism and an anti-immigrant stance across the region, which has narrowed the space for multilateral cooperation and rules-based trade and reoriented economic strategies towards inward-looking priorities, and increased the number of free trade increases within multilateral trade. nations
“The lack of updated global rules governing competition, investment and subsidies across different development models, resulting in imbalances and strategic mistrust, is encouraging a more fragmented and polarized global system, with a weak, both institutional and financial, traditional standard-setting international institutions,” the study said.
As geopolitical tensions intensify and armed conflicts spread in Eastern Europe and West Asia after decades of relative peace, even traditionally pacifist countries like Japan have increased their defense spending to 2% of their GDP, and strategic competition is increasingly fueling trade wars as nations vie for key technological mineral resources.
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Economic statecraft is not new. Historical examples include the Megarian decree imposed by Athens in ancient Greece and the grain supply system of the Roman Empire (Cura Annonae7). Kautilya’s Arthasastra is recognized as a systematic treatise on statecraft that integrates economic governance with political and strategic imperatives.
The Economic Survey claims that India’s reforms and economic performance over the past decade “have helped it remain relevant and resilient, able to adapt to external economic pressures and state apparatuses without disproportionate constraints”. It recommended that the country should now focus on “deliberately building strategic inevitability” by providing goods, services or roles that are “important enough to global value chains that partners cannot easily substitute, thereby reducing the effectiveness of coercive measures”.
India’s scale, diversity and capacity can anchor it in global economic networks, and strengthening domestic capacity, maintaining macroeconomic stability and proactively shaping norms and standards in emerging areas such as digital public infrastructure will ensure that “integration serves as a source of influence and insurance rather than vulnerability,” the report said.
