Trump threatens tariff war on Canada, Mexico, China: Should India be wary?

President-elect Trump's tariff threats against Canada, Mexico, and China have unsettled global markets, raising questions about how these moves might impact India's trade and economic interests

US President-elect Donald Trump’s announcement of heavy tariffs on key trading partners—Mexico, Canada, and China—has rattled global markets. While Indian markets have remained unaffected for now, New Delhi has reasons to monitor the developments closely, given Trump’s past remarks on the “trade imbalance” with India.

 

Trump, who is set to assume office on January 20, 2025, made the announcement via a post on Truth Social.

 

“On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25 per cent Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” Trump declared.

 

He also criticised China for failing to curb the flow of illicit drugs into the US via Mexico.

 

“Until such time as they stop, we will be charging China an additional 10 per cent tariff, above any additional Tariffs, on all of their many products coming into the United States of America,” he added.

 

Trump has long supported tariffs as a key element of his ‘America First’ trade policy, which aims to strengthen domestic industries. Although India has not been directly targeted, Trump’s previous comments suggest that his administration could take a closer look at US-India trade relations.

 

Markets tumble after Trump’s announcement

 

Trump’s tariff announcement sparked a dollar rally, with the currency gaining 1 per cent against the Canadian dollar and 2 per cent against the Mexican peso.

 

Global markets reacted sharply:

 

• Japan’s Nikkei index dropped 1.3 per cent, after falling nearly 2 per cent in early trade.

 

• South Korea’s KOSPI declined 0.6 per cent.

 

• Thailand’s SET Index slipped 0.2 per cent.

 

• Pan-European STOXX 50 futures were down by about 1 per cent.

 

Electronics manufacturers and automakers were hit the hardest:

 

• Advantest, a chip-testing equipment maker, fell 5.6 per cent.

 

• Automakers Toyota Motor and Honda Motor saw declines of 2 per cent and 1 per cent, respectively.

 

• Mitsubishi Heavy Industries dropped 3.5 per cent, and Kawasaki Heavy Industries fell 4.3 per cent.

 

Why Trump loves tariffs

 

Trump has frequently blamed high imports for a perceived decline in American manufacturing and service sectors. If imposed, the proposed tariffs could severely impact Mexico, which sends 83 per cent of its exports to the US, and Canada, whose US-bound exports make up 75 per cent of its total.

 

During his presidency, Trump imposed tariffs on Canadian steel and aluminium, citing national security concerns. He also launched a trade war with China, targeting alleged unfair trade practices such as intellectual property theft and forced technology transfers. These tensions eased slightly with the Phase One Trade Deal in January 2020.

 

Trump’s views on trade with India

 

Trump has often accused India of imposing high tariffs on American goods, calling India a “tariff king.” In 2018, he criticised India’s import duties on Harley-Davidson motorcycles, even after they were reduced to 50 per cent.

 

India ranks as the US’s 10th largest trading partner, with key exports including textiles, pharmaceuticals, and gems. However, Trump’s stance on H-1B visas could pose challenges for India’s IT services exports, which are a crucial component of bilateral trade.

 

Should India be concerned?

 

While Indian markets have not reacted sharply to the tariff announcement, Trump’s presidency could bring potential challenges:

 

• H-1B visa policies: India’s IT firms may face higher costs and restricted labour mobility.

 

• Tariff scrutiny: India’s exports to the US could come under pressure.

Biswajit Dhar, former professor of economics at Jawaharlal Nehru University, highlighted the same. Speaking to Business Standard, Dhar said while Trump did not target India in his tariff announcement, it does not guarantee that he won't do it in future. 

 

According to Dhar, India would be keenly looking at the Trump administration's policy on immigration, given that there has been a decline in H-1B visa approvals during the fiscal year 2024. Indian IT giants such as Infosys have reported fewer approvals for H-1B visas and are opting for local workers, said Dhar.

 

"These cuts will directly impact India," he told Business Standard.

  However, these challenges may also spur domestic reforms. According to a recent State Bank of India (SBI) report, stricter visa rules could push India to focus on local manufacturing and self-reliance.  

“Stricter H-1B rules may increase costs for Indian IT companies but could also boost domestic production and economic independence,” the report noted. 

Dhar also highlighted how Trump has been against the Indo-Pacific Economic Framework (IPEF), an initiative which was launched by outgoing US President Joe Biden in 2022 to develop alternate trade chains and challenge China's influence in the Indo-Pacific. India is a key member of IPEF, which also includes 13 other countries.

 

During his first administration, Trump held similar views for the Trans-Pacific Partnership (TPP) trade deal that had been forged with many of the same countries and withdrew from it. During his recent presidential campaign, he announced his intent to back out from the IPEF upon taking office, which he referred to as "TPP Two."

 

Tariffs as a negotiating tool

 

Experts believe Trump’s tariff threats are part of a broader strategy. Scott Bessent, Trump’s pick for Treasury Secretary, suggested the approach is meant to “escalate to de-escalate” and secure better trade deals for the US.

 

“At the end of the day, he (Trump) is a free trader,” Bessent said in a recent interview with The Financial Times.