From Tariff Fears to Tech Boom: How the Global Economic Narrative Flipped, and Where India Stands 

The global economic narrative has shifted decisively from fears over recession and damaging tariffs to optimism fueled by a tech-driven capex boom in areas like data centers and AI, as noted by S&P’s Paul Gruenwald. While U.S. tariff policies created uncertainty, their impact was overestimated due to lower final rates, limited global retaliation, and businesses absorbing costs rather than passing them all to consumers.

In this new landscape, India has emerged as the fastest-growing major emerging market, having taken the growth baton from China, and is strategically leveraging its relatively closed economy and diversifying international ties to insulate itself from global volatility and pursue a sustained, respectable 6-7% growth trajectory driven by domestic demand and productivity rather than the unsustainable capital-deepening model of its predecessor.

From Tariff Fears to Tech Boom: How the Global Economic Narrative Flipped, and Where India Stands 

Just six months ago, the dominant conversation in global economics was tinged with apprehension. Headlines warned of trade wars, escalating tariffs, and the potential for a worldwide slowdown triggered by protectionist policies. Today, that narrative has undergone a dramatic and unexpected pivot. 

During a recent interaction in India, Paul Gruenwald, the Global Chief Economist at S&P Global Ratings, crystallized this shift. The focus, he suggests, has moved from the downsides of tariffs to the unexpected upsides of a technology-driven capital expenditure boom, particularly in data centers. This recalibration offers a fascinating lens through which to view the resilience of the global economy, the nuanced reality of U.S. trade policy, and the unique position India finds itself in as it cements its status as the world’s fastest-growing major emerging market. 

The Great Tariff Miscalculation: Why the Impact Was Overstated 

When the Trump administration first announced its intent to levy significant tariffs on imports, the economic forecast was grim. Economists, including those at S&P, braced for a substantial shock. But as Gruenwald explains, the anticipated storm largely turned into a manageable drizzle due to three critical factors. 

• The Dilution of Tariff Rates: The initial proposals were staggering, with rates floated as high as 30%. The final implemented rates, however, were significantly lower. The effective statutory tariff rate settled around 17%, a substantial figure, but far from the apocalyptic levels initially feared. This dilution was the first clue that the real-world impact would be less severe than the models predicted. 

• The Lack of Widespread Retaliation: Perhaps the most significant surprise was the muted response from the global community. With the notable exception of China, which engaged in a tit-for-tat exchange, most of America’s trading partners “basically accepted this as a cost of doing business with the US,” as Gruenwald put it. This prevented a destructive, escalating cycle of retaliatory tariffs that could have crippled global trade flows. The recent 12-month truce between the U.S. and China further underscores this trend towards de-escalation, for now. 

• The Absorption by Corporate Margins: This is the most crucial economic insight. While the tariff rate is 17%, the actual revenue collected by the U.S. government translates to an effective rate of only about 10%. Where did the rest go? It was largely absorbed by U.S. businesses—importers, wholesalers, and retailers—in the form of compressed profit margins. Instead of immediately passing the full cost onto consumers and fueling inflation, companies ate the cost. This acted as a shock absorber for the broader economy. 

The anticipated mass exodus of supply chains from China back to the U.S. also failed to materialize at scale. The tariffs, in effect, functioned more as a tax on the U.S. itself, shared between corporate profits and household budgets. This slow, distributed pass-through effect is a key reason why the global economy avoided a sharper downturn. 

The New Macro Story: Data Centers, AI, and the Capex Boom 

With the immediate threat of tariffs receding, a new and more optimistic story is emerging. The global economy is witnessing a surge in capital expenditure, driven by the insatiable demand for artificial intelligence (AI), cloud computing, and the digital infrastructure to support it. 

The “data center boom” is not just a tech story; it’s a macro-economic one. This represents a tangible, long-term investment in physical and digital assets that stimulates manufacturing, construction, and energy sectors. This capex cycle provides a powerful counterweight to lingering policy uncertainties. It suggests that the fundamental drivers of growth are evolving, moving from pure consumption to investment in the next generation of technological infrastructure. The narrative has flipped from managing risk to seizing opportunity. 

India’s Strategic Pivot in a Post-Consensus World 

For India, this global context is particularly relevant. Gruenwald identifies India and Brazil as holding out with higher tariffs, but hints at a potential resolution soon. However, the larger issue transcends any single trade deal. 

The era of the “Washington Consensus”—the longstanding belief in hyper-globalization, open markets, and U.S.-led economic leadership—is fading. The U.S. is now seen as a “less reliable partner,” prompting nations to hedge their bets. 

This is where India’s inherent strengths come into sharp focus. 

• The Advantage of a “Relatively Closed Economy”: Unlike export powerhouses like Germany or Vietnam, India’s economy is driven predominantly by its massive domestic consumption. This insulates it from the immediate shocks of global trade spats. While integration is crucial for long-term growth, this structural characteristic provides a valuable buffer in times of international volatility. 

• Active Risk Management: India is not sitting still. It is actively “diversifying its trade and investment exposure,” as Gruenwald notes. This is evident in strengthened ties with regions like the Middle East, through trade corridors like IMEC, and in pursuing more bilateral agreements. India is strategically reassessing its international relations to build a more resilient, multi-aligned economic future. 

The Growth Baton Has Been Passed: India’s Long Runway 

Perhaps the most resounding takeaway is the confirmation of a long-anticipated shift. “It’s fair to say the growth baton passed from China to India a few years ago,” Gruenwald states. This isn’t just a quarterly blip; it’s a structural transition. 

China’s growth model, heavily reliant on “capital deepening”—pouring immense resources into real estate and infrastructure—has shown its limits. India, in contrast, has a “runway for long and sustained growth” powered by different engines: a young demographic profile, rising productivity, and increasing formalization of its economy. 

Crucially, Gruenwald offers a vital perspective on growth expectations. A trajectory of 6.5% for multiple years is “quite respectable.” He implicitly cautions against the temptation to chase China’s historical double-digit growth, which was achieved through a model that “didn’t go particularly well.” For a large, complex democracy like India, a consistent 6-7% growth rate driven by productivity gains and domestic demand is not a consolation prize; it is a “quite good result” that, through the power of compounding, can transform the nation’s fortunes within a generation. 

The Bottom Line 

The global economic landscape is being reshaped in real-time. The fear-driven narrative of tariffs has been supplanted by the opportunity-led story of a tech capex boom. In this new environment, India stands at a unique inflection point. It has inherited the mantle of leading emerging market growth, possesses the structural insulation to navigate global uncertainty, and is pursuing a strategic diversification of its economic partnerships. The message from top economists is clear: consistency over explosive but unsustainable bursts, and strategic resilience over mere speed, will define the winners in this new economic era. For India, the runway is long, the conditions are favorable, and the future is decidedly bright.