Submission Statement: The world is witnessing “geoeconomic fragmentation” in which export markets will shrink for most countries. Shekhar Aiyar writes India’s strategy of trade diversification is a model for middle powers.
In this landscape, the best strategy for a middle power is likely to be diversification: building a network of trade relationships sufficiently dispersed so that no single bilateral rupture could cause catastrophic harm. The obvious analogy is to modern portfolio theory: a well-diversified investor is not betting on any particular asset but rather seeking insulation against the failure of a subset of assets. Here, the relevant measure is the standard deviation of a country’s trade-weighted geopolitical distance from all trade partners.
By this metric, India is rather well placed. It ranks among the top quartile of countries for export diversification across the geopolitical spectrum, and near the median for import diversification. Its trade relationships range from the US and Europe to Russia and the Gulf, with many Asian and African economies in between. It has conspicuously refused to be corralled into a single bloc: abstaining from Ukraine-related votes at the UN and deepening the Quad partnership, while also playing a foundational role in the BRICS group and negotiating deals with both the US and the EU. Such strategic diversification is enormously valuable in a fragmenting world.
Finally, India should zealously safeguard the diversification it has already achieved, which in turn makes it an attractive partner for countries forging a “China Plus One” strategy or, increasingly, seeking to reduce trade dependence on the US. That means being wary about any bilateral agreement that curtails its freedom of action vis-à-vis third countries. Canada has set an example by walking away from trade negotiations with the Trump administration in part because the US sought veto powerover its engagement with other countries.
Of course, Canada is overwhelmingly dependent on the US as an export market, so it is unclear whether its principled stand will succeed. For India, well-diversified to begin with, the case is more clear-cut. A country that has spent decades cultivating strategic autonomy should think long and hard before trading it away for preferential market access, however attractive the terms. India must lean into its position as one of the few countries to combine economic scale, democratic legitimacy, and geopolitical breadth to boost trade and remain open to all comers.
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