The outcome, Plaza Accord, stood as a rare moment of coordinated international diplomacy aimed at steering foreign exchange rates to relieve mounting global economic pressures caused by American exceptionalism. Over the following two years, the US dollar depreciated sharply, delivering significant gains to the United States. Japan, however, bore the brunt of the adjustment—an economic shock from which it has arguably never fully recovered.
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Unbeknownst to the policymakers assembled that day, an ambitious real estate entrepreneur was paying close attention. In September 1985, Donald Trump was a busy man: overseeing the execution of the Trump Castle Casino project, structuring financing for the mammoth Trump Taj Mahal, and having earlier that year acquired Mar-a-Lago. The intersection of interest rates, capital flows, and currency dynamics was not merely academic for him—it was deeply personal and commercial.
Four decades on, the macroeconomic backdrop that compelled President Ronald Reagan to seek the Plaza Accord—high US interest rates, a strengthening dollar, and surging capital inflows—has re-emerged as a defining feature of the American economy. It is therefore hardly surprising that Trump, armed with lessons absorbed in the mid-1980s, has sought to engineer a trade and currency reset of his own. This time, however, the approach is far more forceful—and its consequences far more global.
India’s trade paradox in a world turning inward
Analysts increasingly argue that while the Plaza Accord proved disastrous for Japan, the Trump-era tariffs could have a comparable long-term impact on China. Early indicators appear to support this view, as the world’s largest consumer economy makes a concerted effort to reduce its dependence on the world’s largest producer. The more pertinent question, however, is where India stands amid these shifting global fault lines.
For decades, Indian policymakers have been criticised for failing to integrate deeply with global supply chains and for not aligning national income growth more closely with foreign trade. India’s export strategy has frequently been contrasted with China’s manufacturing-led growth model of the 1990s—often unfavourably, and not without reason. Yet this apparent shortcoming may now be turning into an unexpected advantage as global trade undergoes a tectonic realignment.
The post–Cold War, Clinton-era vision of globalisation appears to be giving way to a renewed emphasis on self-sufficiency. While such thinking runs counter to textbook notions of comparative advantage, it aligns closely with the populist political currents shaping policy across major economies today. In this changing order, India’s historically cautious engagement with global trade may prove less a failure of ambition—and more a case of unintended strategic resilience.
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The numbers that matter for India’s Budget maths
A few numbers help place this in perspective. India’s GDP in 2025 is expected to be in the range of USD 4.0–4.2 trillion. Of this, merchandise exports account for roughly USD 440 billion. Exports to the United States amount to about USD 90 billion, implying that direct US exposure is close to 2% of India’s GDP.
Moreover, tariff incidence is not uniform across sectors. Key export categories such as pharmaceuticals and mobile phones face relatively lower tariff barriers compared with segments like ready-made garments or gems and jewellery. At the same time, India’s renewed push to deepen trade arrangements with other developed markets is beginning to deliver results. Merchandise trade with Australia has doubled over the past two years, while agreements with the UK and the UAE are expected to generate similar momentum—gradually cushioning the impact of any slowdown in exports to the US.
Budget 2026 challenge: Jobs, services and second-order shocks
That said, while the direct macroeconomic impact may be limited, second-order effects could prove more challenging. Several export-oriented industries are significant employers, particularly of semi-skilled labour. A sudden rise in job losses within these sectors could weigh on India’s still-fragile consumption recovery, especially in smaller cities and towns.
It is these indirect effects that policymakers will need to address in the upcoming budget. Additionally, services—so far largely untouched by tariff actions—deserve special attention. Given India’s heavy reliance on service exports, especially in information technology and business outsourcing, proactive steps will be necessary to ring-fence employment and preserve external competitiveness.
As the world waits for the current global storm to pass, India must use this window to upgrade its manufacturing capabilities. The disruptive currency realignments triggered by the Plaza Accord were partially unwound by the Louvre Accord just two years later, ushering in a phase of greater foreign-exchange stability, stronger consumption, and a revival of free trade. A similar arc may well play out in the present cycle, opening fresh opportunities for emerging economies.
If India can address its longstanding challenges around product quality, scale, and execution capacity in the run-up to the next inflection point, it will be well positioned to anchor the next phase of growth—one defined by Globalisation 2.0.
(The author is Chief Economist at Piramal Group)