Why in news?

On February 1, 2025, U.S. President Donald Trump signed an order imposing heavy tariffs on imports from Mexico, Canada, and China, triggering swift retaliation and straining ties with North American allies.

He justified the move as necessary to protect Americans, citing concerns over illicit fentanyl production and illegal immigration.

What’s in today’s article?

• Imposition of tariffs by President Trump
• Retaliation from Canada, Mexico and China
• Possible impact of tariffs imposed by President Trump
• India is exempted from Trump’s tariff volleys for now
• Conclusion

Imposition of tariffs by President Trump

• U.S. President Donald Trump signed an order imposing tariffs of 10% on all imports from China and 25% on imports from Canada and Mexico, citing economic and national security concerns.
• Energy imports from Canada, including oil and natural gas, would be taxed at 10%.
• The move aims to curb illegal immigration and fentanyl exports but has triggered swift retaliation.

Retaliation from Canada and Mexico

• Canada, Mexico and China have vowed to respond to sweeping new tariffs to their exports to the US announced by President Donald Trump.
• Response by Canada
  • Canada responded with 25% tariffs on $155 billion worth of U.S. imports, including alcohol and fruit.
• Response by Mexico
  • Mexico’s President Claudia Sheinbaum rejected Trump’s claims about Mexican government ties to criminal organizations and announced retaliatory tariffs.
  • She also instructed her economy secretary to implement further countermeasures.
• China’s Tough Choice: Retaliate or Hold Back
  • China faces a difficult decision—responding aggressively could escalate a global trade war, while inaction might make it appear weak domestically.
  • The country’s economy heavily depends on exports, making trade disruptions a major concern.
  • The Ministry of Commerce announced it would challenge Trump’s tariffs at the World Trade Organization (WTO).
  • However, the WTO’s power has weakened due to the U.S. blocking judge appointments.
  • China also urged the U.S. to enhance cooperation rather than escalate tensions.

Possible impact of tariffs imposed by President Trump

• Economic Risks and Inflation Concerns
  • Economists warn that the tariffs could worsen inflation, leading to higher prices for groceries, autos, and housing, potentially undermining Trump’s promise to lower costs.
  • A study from Yale’s Budget Lab estimates the average U.S. household could lose $1,170 in income.
• Escalation of Protectionist Policies
  • Trump signaled plans for additional tariffs on computer chips, steel, oil, gas, pharmaceuticals, and European imports.
  • This could lead to broader economic conflicts between the U.S. and major global economies.
• Impact on Jobs
  • Despite claims of protecting US jobs, Trump’s tariffs had no substantial positive effect on employment in protected industries like steel.
  • Automation and higher input costs might hurt other sectors.
  • While some support tariffs for national security, most economists argue they fail to boost employment or reduce the trade deficit.

India is exempted from Trump’s tariff volleys for now

• Despite Trump’s frequent criticism of India’s tariffs, the country was not included in the first round of US trade restrictions.
• India, however, has proactively reduced tariffs on US exports, including motorcycles, satellite ground installations, and synthetic flavouring essences, as announced in the Union Budget 2025-26.
• India’s Position in the US Trade Deficit
  • India is the ninth-largest contributor to the US trade deficit, accounting for 3.2% of the total.
  • The largest contributors are: China: 30% ($317 billion surplus); Mexico: 19% ($200 billion surplus); Canada: 14.5% ($153 billion surplus).
• Opportunities for India in the US Market
  • With US tariffs making Chinese goods more expensive, Indian exporters see an opportunity to gain market share.
  • Experts noted that trade diversions in Trump’s first term already benefited India, and the new tariffs could further enhance its position.
• Potential Sectors at Risk for India
  • Although India is not an immediate target, US trade restrictions may focus on high-value Indian exports, including:
    • Pharmaceuticals (21.9% of India’s consumer goods exports to the US).
    • Gems & Jewellery (9.6%).
    • Fisheries (shrimps & prawns) (6.6%).
  • Other sectors that may come under scrutiny include chemical products, textiles, and wood pulp.

Conclusion

• Trump’s aggressive trade policies have set off a high-stakes economic confrontation, with potential global repercussions.
• As tariffs take effect, inflation, economic disruption, and strained international relations are likely to dominate Trump’s second term.