When “America First” Becomes Economic Statecraft

For much of the period after the Cold War, countries could maintain economic ties even when they disagreed on strategic issues.

India could increase trade with the United States while buying defense equipment from Russia.
It could strengthen relations with Europe while maintaining energy ties with Iran, and participate in Western-led financial and technological networks without committing itself to any particular geopolitical camp.

That separation is becoming harder to maintain.

The change is not simply that Washington is using tariffs more aggressively. Economic tools are increasingly being used to influence decisions that were once mainly matters of foreign policy: where India buys its energy, how it engages with Iran, and how closely its economic choices match American preferences.

For India, the challenge is to preserve its freedom to make policy decisions when the same relationships that provide access to markets and technology can also be used to put pressure on it.

When trade stops being only about trade

The growing connection between trade and foreign policy became clear during India–US trade negotiations. The two countries had planned to increase bilateral goods trade to $500 billion by 2030, even as Washington pressured India over its purchases of Russian oil.

At one stage, Indian exports faced a combined tariff burden of up to 50 per cent. The pressure was linked not only to ordinary trade concerns but also to India’s continued purchases of Russian crude oil.

The significance went beyond the tariffs themselves: maintaining one foreign-policy choice could become more expensive because of a separate economic relationship.

The United States did not necessarily have to formally prohibit India from buying Russian oil.
Making India’s broader economic relationship with the United States more expensive could itself influence India’s decisions. Access to the American market was becoming connected to the wider strategic relationship between the two countries.

A similar process affected India’s engagement with Iran through the Chabahar port.

India, Iran, and Afghanistan signed a trilateral agreement in 2016 to develop the port and related transport links.
Chabahar offered India a route to Afghanistan and Central Asia without depending on transit through Pakistan.

However, the project’s commercial environment became more uncertain as Washington increased sanctions on Iran.

In February 2025, a US National Security Presidential Memorandum directed the administration to change or withdraw sanctions waivers that provided Iran with economic or financial relief, including those connected with Chabahar.

The significance extended beyond one port: financial and commercial restrictions could affect India’s ability to maintain relationships with other countries.

This pressure can operate even without a direct ban on India itself. If banks, investors, insurers, or shipping companies risk facing American sanctions, they may become reluctant to support a project. Their reluctance can increase costs or make the project harder to continue, reducing India’s practical choices even when it remains legally free to act.

Economic power can therefore be used through the commercial networks on which a country’s policies depend.

The Russian-oil problem shows the same mechanism more clearly

Russian oil brings energy security, prices, and geopolitics into the same decision. Before Russia invaded Ukraine in February 2022, Russian energy accounted for about 2 per cent of India’s energy imports. In the following years, that share rose to more than 32 per cent as Russia became an important source of discounted crude after Western sanctions disrupted its traditional markets.

For India, the attraction was both economic and strategic. Cheaper crude can reduce the import bill and influence inflation and government spending pressures. Replacing one supplier with another is therefore a question of price, availability, and energy security, not simply diplomatic preference.

However, this decision must be made alongside India’s other international relationships. India also values access to Western markets, capital, advanced technologies, and defence cooperation. Its choices cannot be reduced to a simple decision between Russia and the United States. Each relationship brings benefits as well as possible costs.

This is where the distinction between legal autonomy and usable autonomy becomes important. India may be legally free to buy Russian crude, develop Chabahar, or participate in alternative financial arrangements. But if making these choices creates substantial costs elsewhere in its economic relationships, its practical freedom to act becomes narrower.

According to India’s Department of Commerce, India exported $86.51 billion worth of goods to the United States and imported $45.63 billion worth of goods from it in financial year 2024–25. The US accounted for 19.29% of India’s total merchandise exports, compared with 6.32% of its merchandise imports. These figures show that Indian exporters have significant exposure to the US market.

However, trade figures alone do not establish how much political pressure Washington can exert on India.

Economic pressure does not operate like a single command

It would be misleading to describe every such development as one country ordering another to change its policies. The United States has its own stated objectives. In the case of sanctions related to Russia, the stated purpose is to limit Russian revenues associated with the war. The effects on India’s freedom to make policy choices can still be real, even if every measure was not specifically designed to influence Indian foreign policy.

The effects often extend beyond the country directly targeted. A measure intended to restrict one country’s financial or energy system can affect other countries that continue trading with it. A tariff introduced over trade concerns can become linked to energy purchases, while restrictions on financial channels can affect infrastructure projects in other countries.

A policy may have one stated purpose but produce several wider strategic effects. For India, the important question is how its choices change when a major external power can influence the economic cost of pursuing them.

India’s response has been to diversify its relationships rather than withdraw from them.

Diversification becomes the natural response

Reducing dependence can limit vulnerability, but diversification is not the same as cutting economic ties. India has continued to strengthen its economic relationships with the United States and Europe while seeking alternative sources of energy, trade, and financial connections. Its relationship with the European Union is part of this broader effort to expand its economic options.

The same reasoning applies to payment arrangements. India’s experience with Russian trade has created incentives to explore ways of settling transactions without relying entirely on traditional Western financial channels. Rupee-based settlements, bilateral payment arrangements, and wider BRICS financial cooperation are part of this effort.

However, having alternatives does not mean that countries have completely moved away from the dollar. The more immediate goal is to ensure that dependence on one financial system does not prevent trade from continuing when geopolitical interests differ. A country can reduce its exposure to a system without abandoning it.

Energy offers a similar lesson. India does not need to replace Russian oil with a single alternative supplier. Maintaining several sources makes it less likely that a disruption, sanction, or political dispute with one partner will immediately become a national economic problem.

Diversification is therefore a way to manage risk. It can help India maintain working relationships with major powers while reducing the possibility that any one of them can sharply limit its choices.

But diversification has a ceiling

India cannot eliminate every dependency overnight. Its high-technology industries, defence sector, access to Western markets, and access to capital remain important. The United States continues to be a major economic and technological partner.

This creates a tension: economic integration makes the relationship more valuable, but it can also increase the cost of disagreements when economic ties become a means of applying strategic pressure. This does not make the partnership inherently unstable. It means that the economic benefits cannot always be separated from the political conditions surrounding them.

The tariff episode illustrates this tension. At the time, US policy statements linked the removal of additional tariffs on Indian exports to India’s “significant steps” involving energy sourcing, defence cooperation, and wider economic engagement. Access to the American market was being considered alongside India’s broader strategic choices.

These tariff developments must be understood in their historical context rather than treated as a description of the current system. The subsequent official trade-policy update recorded that the US Supreme Court invalidated the reciprocal-tariff system on 20 February 2026. The episode remains relevant for understanding how trade measures can be used in strategic negotiations, but the legal position has since changed.

The underlying imbalance has not disappeared simply because a particular tariff measure has changed. India needs Western markets and technology, while the United States values access to the Indian market and India’s role as a strategic partner. Both sides have reasons to avoid imposing unlimited costs on each other, although they may not be equally capable of absorbing those costs.

Economic ties make both countries vulnerable to disruptions, but they do not guarantee equal bargaining power. This difference helps explain why economic statecraft can be effective.

The real meaning of strategic autonomy changes

Strategic autonomy is often understood as the ability to stay outside alliances led by major powers. That definition becomes less useful when technology, finance, energy, trade, and security are closely connected. No major economy can eliminate all its dependencies.

A more practical definition is the ability to manage these dependencies without allowing any single one to determine the choices available.

Achieving this requires capabilities, not just diplomatic intentions. Having multiple energy suppliers gives a country more options when disruptions occur. Access to several major markets can strengthen its position in negotiations. Domestic technological capabilities can reduce the pressure created by dependence on imported critical technologies, while alternative payment channels can provide options when a particular financial route becomes difficult to use.

In this sense, India’s freedom to act depends on how well it can withstand disruptions in an interconnected economy.

Closer economic ties with the United States and Europe do not automatically reduce India’s freedom of action. They can strengthen that freedom if they expand India’s capabilities and provide more alternatives. The risk arises when diversification simply replaces one heavy dependence with another.

Economic interdependence has become part of the strategic contest

Economics has not replaced geopolitics.

The two are becoming harder to separate because the same networks now connect them. Energy supplies affect diplomacy; access to technology shapes security; financial channels influence foreign-policy choices; and infrastructure projects can be affected by sanctions. Trade agreements, too, can carry expectations about how a country should behave in other areas.

India cannot simply reject American economic power because access to American markets, capital, and technology is valuable. Nor can it assume that deeper economic integration will automatically protect its freedom to make policy decisions. Withdrawing from Western systems would bring its own costs and could create new dependencies.

A more lasting response is managed interdependence: building economic relationships that deliver gains in trade and technology while preserving the ability to work with other partners when interests differ.

This is a more demanding form of strategic autonomy than simply staying non-aligned. It requires India to turn economic engagement into greater national capability without allowing any single relationship to determine the limits of its foreign policy.

When economic relationships become tools of strategic influence, national power is measured not only by military strength or diplomatic reach. It is also measured by how many meaningful choices a country retains when the interests of its most important partners differ.

For India, the challenge is not whether to engage with the United States. It is whether that engagement can strengthen the country’s capabilities without narrowing the strategic freedom those capabilities are meant to protect.

That is the new meaning of autonomy in an age of economic statecraft.