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Trade shocks and supply chain risks have prompted countries to rethink old models. For India and Australia, deeper ties offer a way to build stronger, more resilient supply chains
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Traditional trade theory is centred on the principle of comparative advantage, wherein nations specialise in producing goods they can manufacture most efficiently (at a lower opportunity cost) while importing those they cannot. However, the global trade landscape has evolved significantly in recent years. The COVID-19 pandemic, geopolitical conflicts, climate disruptions, and the rise of protectionist policies have exposed vulnerabilities in traditional supply chains. These disruptions underscore the need for diversification and resilience in trade networks, reducing dependence on specific industries, markets, or suppliers. As countries navigate this shifting terrain, fostering adaptable and robust supply chains has become a strategic imperative for ensuring long-term economic security. In this context, partnerships like India-Australia trade collaboration are crucial in building resilience and securing supply networks against external shocks.
The resurgence of protectionist policies has redefined global trade landscapes. The tariff regimes introduced by the Trump administration—25 percent on Canadian and Mexican imports, 10 percent on Chinese goods, and restrictions on Canadian energy exports—have triggered retaliatory measures. China imposed counter-tariffs on the United States (US) agricultural and aviation exports, while Canada and Mexico responded with tariffs and non-tariff barriers. These trade wars have increased costs across industries—from perishables and metals to energy and intermediaries—adding inflationary pressures across economies. The result is a global reconfiguration of supply chains, compelling businesses to seek alternative trade routes and sourcing strategies.
China imposed counter-tariffs on the United States (US) agricultural and aviation exports, while Canada and Mexico responded with tariffs and non-tariff barriers.
For instance, Mexico, a leading exporter of avocados to the US, is exploring diversification by strengthening trade with Honduras and Guatemala. Coming to India, it is one of the most tariff-imposing nations, with the average rate at 12 percent. Trump’s branding of India as the ‘Tariff King’ and the potential for tit-for-tat tariffs calls for a re-evaluation of India’s protectionist stance—something it has begun addressing by vowing to gradually lower tariffs to promote deeper economic integration. However, this shift comes with trade-offs, particularly in guarding against import dumping and navigating the geopolitical signals of its evolving trade posture.
Trade shocks can broadly be categorised into two types: predictable ones, such as current tariff-related disruptions, and unpredictable ones, like natural disasters. Regardless of their nature, trade systems must be adequately insulated from such shocks. Economic theory offers a range of policy tools in response, including import substitution, export incentives, producer subsidies, and various non-tariff protectionist measures. The financial impact of these tools, however, can be mixed. What remains crucial is the need to reconfigure trade patterns and supply chains—whether proactively (ex-ante) or reactively (ex-post). The evolving trade relationship between India and Australia is a compelling example of such adaptive strategies.
Several cooperative and integrative initiatives have been undertaken to strengthen trade relations and enhance the resilience and clarity of India-Australia supply chains.
India and Australia predominantly engage in intra-industry trade in minerals, pearls, metals, and ores. The bilateral trade stands at US$ 24 billion as of FY24. India has a trade surplus with Australia of almost US$ 8.2 billion. Several cooperative and integrative initiatives have been undertaken to strengthen trade relations and enhance the resilience and clarity of India-Australia supply chains. Measures such as free trade agreements, grants, multi-level dialogues, strategic exploration of new trade sectors, and the transfer of skills and human capital deepen bilateral trade ties and offer insulation against global trade shocks and evolving trade dynamics. In line with the volatile global trade environment with tariff shocks from the US, India-Australia trade story and policies can catalyse policies for India’s other trading partners, helping it adopt a ‘country-specific’ trade policy instead of a ‘universal’ one.
Moving away from a single-market, single-product trade model, India fosters integrated value chains that enhance resilience against economic shocks. Collaborations with the Far East and Australia have deepened economic partnerships and bolstered supply-chain security. The Supply Chain Resilience Initiative (SCRI) between India, Australia, and Japan aims to strengthen supply chains by boosting trade partnerships, digital trade, and risk mitigation strategies. This trilateral initiative enhances resilience by promoting trade and investment diversification while accelerating digital technology adoption to optimise supply-chain efficiency.
The Australia-India Economic Cooperation and Trade Agreement (ECTA) has further facilitated the tariff-free movement of goods between the two nations. Since its implementation, bilateral trade has doubled, with the emergence of new export categories such as gold-studded diamonds and turbojets. This diversification has insulated supply chains from macroeconomic shocks, ensuring sustained growth. Building on this momentum, negotiations for the India-Australia Comprehensive Economic Cooperation Agreement (CECA) are also underway, promising further trade liberalisation and sectoral expansion. It seeks to reduce reliance on single-source energy suppliers in the energy sector. The progressing India-Australia Critical Minerals Investment Partnership aims to secure and diversify mineral supply chains, decrease dependence on China, and mitigate risks of market dumping and economic coercion.
The ‘Made in Australia’ strategy, a key industrial policy, emphasises renewable energy development and strengthens local production capabilities.
Public policy plays a crucial role in supply chain resilience. Australia’s ‘Made at Home’ campaign exemplifies efforts to promote domestic manufacturing and insulate the economy from global trade disruptions. Similarly, the ‘Made in Australia’ strategy, a key industrial policy, emphasises renewable energy development and strengthens local production capabilities. For India, leveraging initiatives such as Production-Linked Incentive (PLI) schemes, digital trade agreements, and bilateral free trade pacts will be essential in fortifying its supply chain network. Enhanced digital infrastructure, logistics modernisation, and trade facilitation measures will also play a critical role in ensuring the adaptability and resilience of India’s trade ecosystem.
Finally, building resilient and diversified supply chains is crucial in an era of trade disruptions, economic shocks, and shifting geopolitical alignments. The India-Australia partnership is at the forefront of fostering supply chain resilience in the Indo-Pacific. Collaborative initiatives in clean energy, technology, and advanced manufacturing will ensure that India and Australia remain key players in a dynamic and evolving global trade order.
Soumya Bhowmick is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation.
Manish Vaidya is a Research Intern at the Observer Research Foundation.
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Soumya Bhowmick is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at Observer Research Foundation (ORF). He ...
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