Mentor’s Comment:  The U.S. has been a strong supporter of free trade and a key driver of globalization since the mid-20th century. However, in a surprising shift, President Donald Trump took drastic action on April 2, calling it “Liberation Day,” by drastically changing U.S. trade policy. Until 2024, the U.S. had a low tariff rate of 2 to 3% on imports for two decades. But on April 2, Trump announced that the U.S. would now charge a minimum of 10% tariff on all imports. For imports from around 60 countries, the tariffs would be much higher, called “reciprocal” tariffs. These include a 20% tariff on the European Union (EU), 27% on India, and 46% on Vietnam.

Today’s editorial analyzes how the U.S. tariffs will affect India and the rest of the world. This topic is useful for GS Paper 2 and 3 in the UPSC Mains exam.

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Why in the News?

On April 2, U.S. President Trump announced that the U.S. would start charging at least 10% tariffs on all imports.

How did markets respond?

• Stock Markets Nosedived: The announcement caused panic among investors, leading to sharp declines in stock markets around the world. Eg: The U.S. stock market dropped significantly, with major indices like the Dow Jones and S&P 500 seeing large declines as investors feared the impact of the tariffs.
• Increased Economic Uncertainty: The abrupt tariff increases created a sense of economic uncertainty, particularly regarding trade relations and the global supply chain. Eg: The value of the U.S. dollar fluctuated, with the dollar weakening against several currencies as concerns about a trade war heightened.
• Commodity Prices Rose: The market anticipated higher costs for goods, especially imported items, leading to a rise in the price of key commodities. Eg: Goods like electronics and consumer products became more expensive, reflecting the expected rise in tariffs and trade barriers.

Why is China better prepared for a trade war?

How will higher U.S. tariffs impact India’s exports? 

• Reduced Export Earnings: Higher U.S. tariffs could decrease India’s export earnings as Indian goods would become more expensive for U.S. consumers, potentially leading to lower demand. Eg: Products like textiles and gems & jewelry, which are major export items to the U.S., might see a drop in sales due to increased tariffs.
• Impact on Key Sectors: India’s manufacturing sectors, such as automobiles and electrical machinery, might face stiffer competition due to higher tariffs, reducing their ability to compete in the U.S. market. Eg: Indian automobile exports, especially in segments like small cars, might struggle as U.S. tariffs raise the prices and reduce competitiveness.
• Diversification of Export Markets: Since the U.S. accounts for 21.8% of India’s total exports, any tariff hike could push India to explore new markets outside the U.S., reducing the impact of the tariff increase. Eg: India might increase its focus on the European Union or Southeast Asian markets, where demand for Indian goods remains strong.
• Pharmaceutical and Service Exports Unaffected: Higher tariffs on goods may not impact India’s pharmaceutical and services exports as significantly, as they are major contributors to India’s trade surplus with the U.S. Eg: Generic medicines and IT services, such as software development, will likely continue to thrive in the U.S. market despite higher tariffs on other goods.
• Pressure on Domestic Industry: Increased tariffs could also drive higher production costs in India, as it may face higher input costs for raw materials imported from the U.S. This could hurt the competitiveness of India’s export products. Eg: Sectors like steel and chemicals, which rely on U.S. exports for raw materials, may see a rise in production costs, potentially reducing profit margins.

Way forward: 

• Diversify Export Markets: India and other countries should explore new markets outside of the U.S., especially in emerging economies and regional trade agreements, to reduce dependency on the U.S. and mitigate the effects of tariff hikes. Eg: Strengthening ties with the European Union, Southeast Asia, and Africa could help reduce reliance on the U.S. market.
• Enhance Domestic Innovation and Self-Sufficiency: Countries should focus on boosting domestic production, innovation, and technological advancements to reduce vulnerability to external trade barriers and tariffs. Eg: India could prioritize self-reliance in sectors like pharmaceuticals, electronics, and renewable energy to counter tariff pressures.

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Mentor’s Comment:  The Arctic has been isolated for centuries, but climate change is melting ice, which leads to opening access to valuable resources like oil, gas, and rare earth metals. Melting ice is also creating new trade routes. Unlike Antarctica, the Arctic has no strong legal protections, leading to territorial claims and military activity, increasing global tensions.

Today’s editorial discusses the geopolitical impact of climate change in the Arctic. This topic is relevant for GS Paper 2 (International Relations) and GS Paper 3 (Environment).

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Why in the News?

Global experts are concerned about increasing tensions in the Arctic, cautioning that if not controlled, they might cause conflict in the area.

What are the key factors driving increased geopolitical tensions in the Arctic?

• Climate Change & Melting Ice: The Arctic ice cap is shrinking, making previously inaccessible natural resources and trade routes viable. Example: The opening of the Northeast Passage along Russia’s coast could significantly reduce shipping times between Asia and Europe.
• Competition for Natural Resources: The region holds an estimated 13% of the world’s undiscovered oil and 30% of untapped natural gas, along with rare earth minerals. Example: Greenland has significant deposits of rare earth elements, attracting interest from China and the U.S.
• Territorial Disputes & Overlapping Claims: Countries are extending their maritime boundaries under UNCLOS to claim more of the Arctic seabed. Example: Russia, Canada, and Denmark have overlapping claims to the Lomonosov Ridge, a key Arctic seabed area.
• Military Posturing & Strategic Control: Nations are increasing their military presence to assert dominance and protect interests. Example: Russia has expanded its Arctic military bases and deployed nuclear-powered icebreakers, while NATO has increased Arctic exercises.
• New Maritime Trade Routes & Geopolitical Rivalry: The melting ice is opening faster, alternative shipping lanes, bypassing traditional routes like the Suez Canal. Example: China is promoting the Polar Silk Road via the Northeast Passage, while Russia maintains strict control over Arctic navigation.

Who are the primary stakeholders controlling different regions of the Arctic?

• Arctic Coastal Nations (Arctic Council Members): Eight countries control Arctic land and territorial waters: Canada, Denmark (via Greenland), Finland, Iceland, Norway, Russia, Sweden, and the U.S. Example: Russia has the largest Arctic coastline and controls key ports, while Canada claims sovereignty over the Northwest Passage.
• International Governance & UNCLOS: The UN Convention on the Law of the Sea (UNCLOS) regulates maritime claims, allowing nations to extend seabed claims if proven as a continental shelf extension. Example: Russia, Canada, and Denmark have all submitted overlapping claims to the Arctic seabed under UNCLOS.
• Non-Arctic Global Powers & Observers: Non-Arctic nations like China, India, the UK, and the EU monitor Arctic developments due to strategic interests in trade routes and resources. Example: China declared itself a “Near-Arctic State” in 2018 and is investing in icebreaker ships to influence Arctic shipping lanes.

Where do territorial disputes and conflicting claims arise among Arctic nations?

• Competing Seabed Claims under UNCLOS: Arctic nations claim extended seabed areas beyond their Exclusive Economic Zones (EEZs) by proving geological extensions of their continental shelves. Example: Russia, Canada, and Denmark (via Greenland) have overlapping claims to the Lomonosov Ridge in the central Arctic Ocean.
• Northwest Passage Dispute (Canada vs. U.S.): Canada considers the Northwest Passage part of its internal waters, granting it control over navigation. The U.S. and other nations claim it is an international strait, allowing free passage. Example: The U.S. has conducted “freedom of navigation” operations in the passage, challenging Canada’s sovereignty.
• Svalbard Archipelago (Norway vs. Russia): Norway administers Svalbard under the Svalbard Treaty (1920), granting access to signatory nations for commercial activities. However, Russia argues for broader rights. Example: Russia continues to expand mining operations in Svalbard and has politically challenged Norway’s restrictions on military activity there.
• Greenland Sovereignty & U.S. Interest (Denmark vs. U.S.): The U.S. has questioned Denmark’s sovereignty over Greenland and previously attempted to purchase the island due to its strategic location and rare earth minerals. Example: In 2019, then-U.S. President Donald Trump expressed interest in buying Greenland, leading to diplomatic tensions with Denmark.
• Barents Sea & Arctic Borders (Norway vs. Russia): Russia and Norway have had disputes over their maritime boundary in the Barents Sea, an area rich in oil, gas, and fisheries. Example: A 2010 agreement settled much of the dispute, but tensions persist, especially with increasing Russian military activity near Norwegian waters.

Why is the Arctic considered strategically important for global powers?

• Rich Natural Resources: The Arctic is estimated to hold 13% of the world’s undiscovered oil and 30% of its untapped natural gas, along with rare earth elements, phosphates, and fisheries. Example: Russia has significantly invested in Yamal LNG projects, while Greenland has attracted interest from China and the U.S. for its rare earth deposits.
• New Trade Routes Due to Melting Ice: The Northeast Passage (along Russia’s coast) and the Northwest Passage (through Canada) could drastically reduce global shipping distances, saving billions in transportation costs. Example: China’s “Polar Silk Road” seeks to use the Northeast Passage for trade, reducing travel time between East Asia and Europe by 40% compared to the Suez Canal route.
• Military & Geopolitical Significance: The Arctic provides strategic military advantages, including submarine deployment zones, early warning radar systems, and missile defense capabilities. Example: Russia has established new Arctic military bases, the U.S. has expanded its Thule Air Base in Greenland, and NATO has increased military exercises in the region.

How are nations like Russia, China, and NATO asserting their influence in the Arctic region?

• Russia: Militarization and Territorial Claims: Russia has the largest Arctic military presence, including nuclear-powered icebreakers, air bases, and missile defense systems. It has also made territorial claims under UNCLOS to extend its control over the Arctic seabed. Example: In 2007, Russia planted its flag on the Arctic seabed at the North Pole and continues to expand its Arctic military bases, such as in Franz Josef Land and the Kola Peninsula.
• China: Economic Investments and Strategic Partnerships: China, though not an Arctic nation, calls itself a “Near-Arctic State” and is expanding its influence through investments in Arctic infrastructure, scientific research, and trade routes (Polar Silk Road). Example: China has invested in Arctic mining projects in Greenland and collaborated with Russia on LNG projects, like the Yamal LNG plant. It is also building nuclear-powered icebreakers.
• NATO: Strengthening Military Presence and Alliances: NATO has intensified military exercises and surveillance in the Arctic, especially after Finland and Sweden joined the alliance following Russia’s invasion of Ukraine. Example: In 2024, NATO conducted large-scale Arctic military drills near the Russian border in Finland and strengthened defense ties with Canada and Norway.

Way forward: 

• Strengthening Arctic Governance & Diplomacy: Enhance international cooperation through the Arctic Council and UNCLOS to manage territorial disputes, resource exploration, and environmental challenges. Example: Establish legally binding agreements for sustainable Arctic resource extraction and conflict resolution mechanisms to prevent geopolitical tensions.
• Balancing Economic Development with Environmental Protection: Promote responsible Arctic development by enforcing strict environmental regulations while ensuring indigenous rights and sustainable economic activities. Example: Encourage renewable energy projects, scientific research, and eco-friendly shipping practices to mitigate the impact of Arctic exploitation.

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