With Donald Trump’s imminent return to the US presidency, a storm of apprehension is brewing across the globe. His stated intention to reinstate tariffs on key trading partners, starting on day one, has sent shockwaves through international markets. This aggressive trade policy, seemingly rooted in his desire to curb illegal immigration and drug trafficking, could trigger a devastating trade war with far-reaching consequences.
On November 25th, Trump announced plans to levy a 25% tariff on all goods imported from Mexico and Canada, citing their ‘ridiculous open borders’ as justification. He also threatened a 10% increase on existing tariffs imposed on Chinese goods, directly linking this to China’s alleged failure to stem the flow of illegal drugs, particularly fentanyl, into the United States. These pronouncements, made on his Truth Social platform, echo his campaign promises to use economic leverage to address issues beyond traditional trade disputes.
The response from the targeted countries has been swift and firm. Mexican President Claudia Sheinbaum warned that such tariffs would lead to a cycle of retaliation, ultimately causing inflation, job losses, and crippling damage to bilateral trade. She highlighted the particularly heavy impact on US automakers with significant operations in Mexico, like General Motors and Ford. Canadian Prime Minister Justin Trudeau, while acknowledging a recent phone call with Trump, urged caution, emphasizing the importance of cooperation and dismissing the notion of a trade war as undesirable.
China, too, expressed strong reservations, asserting that a trade war would benefit no one. A spokesperson for the Chinese Embassy refuted Trump’s claims about China’s complicity in the fentanyl trade, highlighting the existing communication channels between the two countries on anti-narcotics cooperation.
While Trump’s initial announcements excluded India, the country remains apprehensive. India shares substantial trade ties with the US, and Trump’s past statements paint a concerning picture. During his previous presidency, he referred to India as a ‘very big abuser’ of import tariffs, citing high duties imposed on US goods. He also revoked India’s preferential trade status, removing it from the Generalized System of Preferences program. Experts now predict potential US tariffs on Indian exports such as automobiles, textiles, and pharmaceuticals, with further implications for India’s IT sector.
Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), warns that Trump’s ‘America First’ approach could trigger reciprocal tariffs on Indian goods, necessitating proactive measures. Agneshwar Sen, Partner-Tax and Economic Policy (International Trade) at EY, echoes these concerns, highlighting the vulnerability of India’s textile, chemical, pharmaceutical, and auto/engineering sectors. The potential for escalated tensions underscores the significant uncertainty facing India as Trump prepares to assume office. The coming months will be critical in determining the shape of US-India trade relations and the global economic landscape in the face of Trump’s potentially disruptive trade policies.
