Mentor’s Comment

Recent U.S. trade and sanctions measures aimed at Russia, China, and third-country partners mark a decisive shift from market-led globalisation to coercive economic statecraft. The article examines how aggressive tariff threats, secondary sanctions, and currency weaponisation are accelerating global de-dollarisation pressures, with India emerging as a key collateral stakeholder in a fragmenting global financial order.

Why in the News

The U.S. administration has proposed tariffs of up to 500% on countries importing Russian oil. It has also expanded sanctions on Russian and Venezuelan energy assets. This represents a shift from targeted sanctions to secondary economic coercion, affecting neutral partners like India. At the same time, growing non-dollar energy settlements and China’s yuan-based oil trade indicate stress in the dollar-centric system, raising concerns over trade stability, capital flows, and autonomy of emerging economies.

How has economic coercion replaced market-led globalisation?

1. Secondary sanctions: Extends U.S. trade penalties to third countries purchasing Russian oil, redefining neutrality as non-compliance.
2. Punitive tariffs: Proposals of up to 500% import tariffs convert trade policy into a deterrence instrument rather than a competitiveness tool.
3. Asset targeting: Sanctions on Russian and Venezuelan energy infrastructure weaken supply-side stability rather than isolating individual firms.
4. Systemic impact: Shifts global trade from rules-based predictability to power-based negotiation.

Why is the dollar’s centrality increasingly contested?

1. Currency weaponisation: Repeated use of the dollar-clearing system for sanctions enforcement erodes trust among trading partners.
2. Trade settlement diversification: Russia now conducts over 20% of its crude exports outside the dollar system.
3. Historical contrast: The dollar underpinned global finance throughout the late 20th century due to neutrality and liquidity, not coercion.
4. Structural signal: Reduced dollar reliance reflects risk hedging, not ideological alignment.

How are energy markets driving de-dollarisation?

1. Non-dollar oil trade: China’s payment for Russian crude in yuan indicates partial energy-market realignment.
2. Discount-driven trade: India’s increased Russian oil imports reflect price arbitrage rather than political alignment.
3. Settlement experimentation: Bilateral currency mechanisms reduce exposure to sanctions-induced payment disruptions.
4. Market fragmentation: Energy trade increasingly follows geopolitical blocs rather than price efficiency alone.

What are the implications for India’s trade and exports?

1. Export vulnerability: U.S. tariffs could affect textiles, footwear, marine products, pharmaceuticals, electronics, and engineering goods.
2. Negotiating asymmetry: India faces pressure to absorb geopolitical costs despite non-alignment.
3. Investment uncertainty: Escalating trade coercion weakens investor confidence amid already volatile capital flows.
4. Macroeconomic stress: Potential spillovers include currency pressure, trade deficits, and costlier imports.

How does China’s trade posture differ from India’s exposure?

1. Export diversification: China has significantly reduced dependence on U.S. markets through diversified trade corridors.
2. Scale advantage: China’s large domestic market cushions external shocks.
3. Strategic insulation: India’s export basket remains more sensitive to Western market access.
4. Asymmetric resilience: De-dollarisation favours economies with manufacturing scale and settlement alternatives.

Is the global financial architecture entering a transition phase?

1. Multipolar currency signals: Rise of yuan, local currencies, and barter-like arrangements.
2. Erosion of predictability: Sanctions-driven finance increases transaction costs and compliance risks.
3. Institutional strain: Bretton Woods-era assumptions face stress from unilateral enforcement actions.
4. Systemic uncertainty: The issue extends beyond geopolitics to the architecture of global trade itself.

Conclusion

The expanding use of sanctions, tariffs, and financial leverage by the United States signals a shift from a rules-based economic order to coercive geo-economics, weakening trust in the dollar-centric system. For India, this moment underscores the necessity of safeguarding strategic autonomy through diversified trade partnerships, resilient payment mechanisms, and calibrated engagement with competing power blocs in a transitioning global financial order.

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