The US-India Pact Reveals the Dangers of Weaponised Commerce
John Ferguson argues that damage control is not the same as building long-term prosperity.
Last week's US-India trade agreement should be good news. It stops American shoppers from getting hit with more price increases and saves Indian exporters from crippling tariffs. But look closer and this eleventh-hour deal exposes something worrying: tariffs aren't used solely as economic tools anymore, but as functions of statecraft. When trade is weaponised, the fallout goes well beyond any single agreement between two countries.
The contrast in India's recent trade experiences exemplifies the two diverging paths for global commerce. One path is marked by reactive, coercive, and last-minute agreements aimed primarily at damage control. The alternative, and the one that mirrors the rules-based order we once relied upon, involves established processes of deliberation designed to foster mutual, long-term prosperity and predictability among all participants.
The latter is exemplified by the EU-India Free Trade Agreement. Concluded after years of negotiation, the agreement provides a stable framework built on predictable rules and mutual commitments. Companies on both sides can invest confidently, knowing the terms won't change with the political winds. Supply chains can be planned across decades, not dictated by headlines.
Meanwhile, the US-India arrangement offers no such certainty. It exemplifies a new reality where trade policy shifts overnight based on unilateral whim rather than multilateral processes. Indian manufacturers cannot reasonably build factories, train workers, or secure financing when the commercial environment might be upended at any moment. Economies cannot construct supply chains on shifting sand, yet that is precisely what today’s global trading order demands.
The weaponisation and fragmentation of trade
This weaponisation of tariffs represents a fundamental departure from the post-war trading system. The data tells a stark story: while trade-liberalising measures more than doubled between 2018 and 2025, protectionist policies tripled over the same period, according to data from Global Trade Alert. Tariffs, sanctions, export controls and subsidies are now routinely deployed for political ends (both for domestic and international reasons). Trade diplomacy is giving way to rivalry, and commerce has become statecraft. What once meant efficiency and openness now signals risk, protection and power.
The economic costs of fragmentation are already clear. Economist Impact’s research suggests that rapid escalation in financial fragmentation could reduce global GDP by almost 6% by 2030 and eliminate nearly 280 million jobs. These projections represent the real erosion of economic opportunity that hurts citizens most of all. Consumers face unpredictable prices, and the poorest households bear the brunt.
Meanwhile, the World Trade Organisation faces gridlock. Its dispute-settlement mechanism lies idle. Countries are responding by striking bilateral and minilateral deals, but these splinter the system further, creating a trading order that is messy, uncertain and politicised.
More concerning is what this weaponisation signals about broader geopolitical trends.
When trade becomes primarily a coercive tool rather than a framework for mutual benefit, it reflects a worldview where international relations are purely zero-sum contests. Large firms, cushioned by scale and political access, can better weather this turbulence. They can shift production and lobby for exemptions—advantages that smaller rivals lack. This creates a two-tier system where market power primarily determines commercial success.
Rebuilding trust and recommitting to stability and predictability
Rebuilding trust in the global trading system is urgent. This doesn't mean accepting the status quo or abandoning legitimate concerns about strategic resilience, labour standards, or climate action. It means addressing those concerns through transparent mechanisms and binding agreements rather than through threats. The foundation must remain rules-based, but those rules need updating for a modern era shaped by digital trade, artificial intelligence, and climate pressures. By generating evidence-based insights and convening stakeholders, our new multi-year research and insights initiative, the Future of Trade, endeavours to chart a new roadmap for a new global trading order fit for the challenges and opportunities of today and tomorrow.
What the global economy desperately needs is a return to stable, predictable trade, where commerce isn't subject to unexpected upheavals, coercion and weaponisation. The US-India deal may have prevented immediate damage, but damage control is not the same as building long-term prosperity.
Until major economies recommit to open markets and transparent rules fit for this new era, global commerce will remain subject to weaponised tariffs and fragmented and reactive deals. That uncertainty carries costs: foregone investment, reduced innovation, and missed opportunities for shared growth. These are costs that no hastily arranged deal can fully offset.
John Ferguson, head of the Future of Trade initiative at Economist Impact.
Photo by Lio Voo
