US Tariff Policy a 'Strategic Blunder' Against Democratic Ally India: Economist

Andres Velasco, the economist leading the London School of Economics' School of Public Policy, arrived in New Delhi with a sharp critique of American trade strategy. The United States had imposed a 50% tariff on India, and Velasco did not mince words about what he saw: a policy that was irrational, unpredictable, and, in his view, illegal under both international law and American law itself.

What made this particular tariff regime especially troubling to Velasco was not merely its economic logic—or lack thereof—but its geopolitical consequences. India, he argued, is a democratic ally whose weight in global affairs is only growing. To mistreat such a partner, he told The Economic Times, was a strategic miscalculation for Washington. The United States would need India not simply as a trading partner but as a central player in the political and military architecture of the coming decades. "Mistreating any country is bad," Velasco said, "but mistreating a democratic ally is even worse."

Velasco was in India to advance what he calls the London Consensus, a new framework for economic thinking that he positions against what he describes as the outdated Washington Consensus. The London Consensus emerged from a convening of 55 economists in London who sought to chart a fresh economic direction for the 21st century. Central to this thinking is the idea that countries need not accept tariff pressure as inevitable or insurmountable. The United States, after all, accounts for just 14% of global trade. India and other nations have alternatives. A negative shock, Velasco suggested, could become a catalyst for internal reform and competitive strengthening.

Yet Velasco was not arguing that India should simply accept tariff pain as a gift. Rather, he saw an opening. India has liberalized substantially over recent decades, but it remains, in his assessment, considerably less open than many of its Asian peers. The tariff challenge could push India toward the next wave of structural reforms. He pointed to India's recent consolidation of the Goods and Services Tax into primarily two rates—5% and 18%—as progress, but noted that many countries operate with a single value-added tax rate. Chile, his own country, maintains a flat 19% rate. India, he suggested, could move further in that direction. Beyond tax simplification, he emphasized the need to dismantle non-tariff barriers that still constrain India's competitiveness in global markets.

The deeper argument Velasco was making touched on something more fundamental about economic growth itself. India's transformation since the early 1990s reforms had been remarkable—a genuine shift in the nation's growth trajectory. But that achievement, he cautioned, could not be taken as a guarantee of future performance. Growth is not a destination; it is a continuous process. Yesterday's breakthrough becomes today's commodity. What sustains rapid growth over the next quarter-century, he argued, is sustained innovation and the reforms that enable it.

When asked how India could maintain its growth momentum amid tariff headwinds and global uncertainty, Velasco returned to the same theme: the answer lay in the next phase of structural change. Reforms that deepen market openness, reduce complexity in the tax system, and remove barriers to competition would be what kept innovation vibrant and growth rates elevated. The tariff challenge, in this reading, was not an ending but a potential beginning—a pressure point that might force the kind of difficult choices that lead to genuine competitive advantage.