But the backdrop to this big push is fraught, to put it mildly. US President Donald Trump’s sweeping and erratic tariffs are only the latest body blow to the international trading system. The World Trade Organization’s Appellate Body, which adjudicates trade disputes between member states, has been decapitated since 2019. Countries are increasingly viewing trade and investment through a national security lens. The rules-based multilateral trade order that the Asian Tigers and China relied on to pursue export-led development has effectively collapsed, with no evident successor in sight. As Antonio Gramsci put it at another moment of profound global upheaval, this is “the time of monsters.”

How might a middle power like India anchor its trade strategy in such a tumultuous period? The nascent field of geoeconomics offers some useful guidance.

Consider the concept of “geopolitical distance.” Political scientists at Georgetown University have compiled a database measuring the gap between countries at any given point in time, based on voting patterns at the United Nations General Assembly. Research has shown that geopolitical distance is becoming increasingly important in determining patterns of international economic engagement. Bilateral trade, foreign direct investment and cross-border financial claims fall sharply with geopolitical distance.

This trend raises the prospect of a segmented world economy, with export markets shrinking for most countries. While such “geoeconomic fragmentation” is still limited compared to, say, the Cold War era, the trajectory is worrying. A review of several recent papers suggests that a full decoupling of the global economy into rival blocs could reduce global GDP by up to 7% in the long term. The burden would fall disproportionately on emerging and developing economies, which stand to benefit the most from external market access, unrestricted foreign direct investment, and technology transfers.

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.

Indian policymakers should draw several lessons from these findings. First, to leverage its enviable spread of partners, India must trade much more than it does today. While the country’s current trade-to-GDP ratio of about 45% marks considerable progress from the near-autarky of the pre-liberalization era, it remains well below the levels achieved by successful East and Southeast Asian economies.

The recent string of FTAs is an excellent start, but more could be done to develop regional trade by joining major agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Closer to home, trade links among the economies of South Asia remain much weaker than those among comparable groups such as the Association of Southeast Asian Nations. To take one example, they could be strengthened by expanding cross-border energy markets: abundant hydropower from neighbors such as Nepal and Bhutan could reduce India’s dependence on fossil-fuel imports.

Next, India should participate in plurilateral deals struck among various subsets of WTO members seeking to deepen trade in a specific area. The Columbia University economist Jagdish Bhagwati famously argued that plurilateral agreements impede first-best multilateral progress, but that argument is irrelevant when the WTO has not made any multilateral progress on lowering trade barriers since the Doha Development Round commenced in 2001. Consider the plurilateral agreement on e-commerce now being implemented by 66 members, covering 70% of global trade. As a large net-exporter of digital services, India should not only sign on, but also seek a leading role in the coalition.

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 power over its engagement with other countries.