The United States recently introduced significant tariffs on its largest trade partners, including Canada, Mexico, and China. A 25% tariff now applies to imports from Canada and Mexico, while China faces a 10% tariff. These measures, part of former President Donald Trump’s protectionist trade strategy, aim to reduce the country’s massive $1 trillion trade deficit.

Understanding the Trade War

A trade war occurs when countries impose tariffs or trade restrictions on each other to counter perceived unfair practices or protect domestic industries. While these measures may shield local businesses, they can backfire if essential goods become more expensive due to insufficient domestic production.

Why Did the US Enforce Tariffs?

The US cited multiple reasons for these tariffs, including a desire to curb drug inflow and undocumented immigration. However, these tariffs are likely to lead to higher prices for American consumers on goods like avocados, cars, and sneakers.

Retaliation from Affected Nations

The US’s largest trade partners, Canada, Mexico, and China—together accounting for one-third of US imports—have responded with countermeasures:

• Canada: Announced a 25% retaliatory tariff on US-made goods.
• Mexico: Indicated plans for similar tariffs.
• China: Expected to impose its own set of retaliatory tariffs.

The US Trade Deficit

China contributes the most to the US trade deficit (30%), followed by Mexico (19%) and Canada (14.5%). India ranks ninth, accounting for 3.2% of the deficit.

India’s Strategic Response

To safeguard its interests, India has reduced tariffs on US-centric exports such as motorcycles and satellite components. These adjustments were incorporated into India’s Union Budget for 2025-26.

Key Indian Exports at Risk

India maintains a trade surplus with the US in high-value sectors like pharmaceuticals, gems and jewelry, and seafood. However, if US tariffs target these industries, they could face significant challenges.

These developments underline the interconnected nature of global trade and the ripple effects of protectionist policies across economies.