From Washington to New Delhi: The Economic Consequences of Trade Wars

The trade war initiated by former U.S. President Donald Trump significantly altered global trade patterns, affecting multiple economies, including India. The conflict began in 2018 when the Trump administration imposed tariffs on Chinese imports, citing concerns over intellectual property theft, forced technology transfers, and the widening trade deficit. These measures soon expanded to include tariffs on Mexico and Canada, sparking retaliatory actions from affected nations.

By 2025, the repercussions of these protectionist policies will continue to shape international trade, affecting businesses, supply chains, and economies worldwide. While the direct conflict involved the U.S., China, Mexico, and Canada, the ripple effects extended to emerging economies like India, influencing export opportunities, investment flows, and overall market dynamics.

Tariffs Imposed by the US

The Trump administration adopted an aggressive stance by imposing high tariffs on imports from its key trading partners:

• China: In 2018, tariffs on $200 billion worth of Chinese goods were initially set at 10% and later increased to 25%. In 2025, an additional tariff hike raised duties on critical Chinese exports like electronics, textiles, and machinery to 30%.
• Mexico and Canada: The U.S. levied a 25% tariff on steel and a 10% tariff on aluminum imports from these two North American partners, which strained trade relations and led to countermeasures from both countries.
• Other Countries: The U.S. also imposed global tariffs on products such as solar panels, washing machines, and automobiles, affecting various nations reliant on the American market.

U.S. Tariffs and Retaliatory Measures (2018–2025)
Year	U.S. Tariffs on China (%)	U.S. Tariffs on Mexico (%)	U.S. Tariffs on Canada (%)	China’s Retaliation (%)	Mexico’s Retaliation (%)	Canada’s Retaliation (%)
2018	10% on $200B goods	25% on steel, 10% on aluminum	25% on steel, 10% on aluminum	5%-10% on U.S. soybeans, cars, chemicals	5%-15% on pork, apples, whiskey	10%-25% on dairy, steel, aluminum
2019	Increased to 25%	25% on all steel imports	25% on all steel imports	25% on U.S. goods worth $60B	20% on key U.S. exports	25% on U.S. exports
2020	25%-30% on additional goods	No new tariffs	No new tariffs	Tariffs sustained	No new tariffs	No new tariffs
2021	30% on electronics, textiles	10%-15% on auto parts	10%-15% on aluminum products	20%-30% on U.S. goods	15%-20% on U.S. goods	10%-15% on U.S. goods
2022	Tariffs remain high	No major changes	No major changes	No major changes	No major changes	No major changes
2025	30% on electronics, 35% on key industrial goods	15% on auto parts	15% on aluminum, 10% on energy exports	35% on U.S. exports	25% on key U.S. imports	25% on steel, food, and U.S. goods

Reciprocal Tariffs by China, Canada

In response, the affected nations imposed counter-tariffs on U.S. goods:

• China: Raised duties on U.S. agricultural products, automobiles, and chemicals, targeting states that were politically crucial for the Trump administration.
• Mexico: Imposed tariffs on key U.S. exports such as pork, apples, and whiskey, impacting American farmers and businesses.
• Canada: Responded with tariffs on U.S. dairy products, steel, and aluminum, intensifying economic tensions between the two nations.

These retaliatory measures disrupted global supply chains, forcing companies to seek alternative suppliers and leading to price hikes in several industries.

Impact on India

India, although not directly targeted, felt the impact of the trade wars in multiple ways, both positive and negative:

1. Export Growth and Trade Diversion

One of the unintended benefits for India was the increase in exports to the U.S. due to trade diversion. With tariffs making Chinese products more expensive, American importers turned to Indian suppliers for goods like:

• Textiles and Apparel: India’s textile exports to the U.S. surged as Chinese products faced higher duties.
• Engineering Goods: The U.S. increasingly sourced auto components and machinery from India.
• Pharmaceuticals: Indian pharma companies expanded their presence in the U.S. as Chinese competitors struggled with tariff constraints.

According to Trading Economics, India’s exports to the U.S. rose from $54.3 billion in 2019 to $85.5 billion in 2024, reflecting the shifting trade patterns.

2. Market Volatility and Currency Fluctuations

The imposition of tariffs led to heightened market uncertainty, triggering fluctuations in stock markets worldwide. The Indian stock market saw periods of volatility, with the Nifty 50 index reacting sharply to trade-related developments. However, despite initial shocks, the Indian rupee demonstrated resilience, aided by strong foreign exchange reserves and supportive monetary policies.

3. Increased Cost of Raw Materials

While Indian exports benefited from the trade war, specific industries faced higher input costs due to increased global tariffs:

• Electronics Manufacturing: India imports key components from China, and higher tariffs led to costlier inputs.
• Automobiles: Rising steel and aluminum prices impacted car manufacturing costs in India.
• Consumer Goods: Indian businesses that relied on Chinese imports for intermediate goods faced increased expenses, affecting profitability.

4. Impact on India’s Aviation Industry

The war also had repercussions on India’s aviation sector, primarily due to rising costs and disruptions in global supply chains:

• Aircraft and Component Costs: India’s airline industry relies heavily on aircraft and components from U.S.-based manufacturers like Boeing. Higher tariffs on raw materials like aluminum increased aircraft production costs, leading to higher prices for Indian airlines.
• Fuel Price Volatility: Trade tensions contributed to global crude oil price fluctuations, directly affecting aviation turbine fuel (ATF) costs, a significant airline expense.
• Supply Chain Disruptions: Imposing tariffs on China impacted the availability of key aircraft components, delaying aircraft deliveries and increasing maintenance costs.
• Passenger Traffic and Pricing: Rising operational costs forced Indian airlines to adjust fares, affecting travelers’ affordability and demand in domestic and international segments.

5. Strategic Trade Negotiations

India actively pursued trade deals to capitalize on the shifting global landscape. Key developments included:

• Bilateral Trade Talks: India engaged in trade discussions with the European Union and the United Kingdom, seeking preferential access to these markets.
• Strengthening U.S. Trade Relations: India leveraged the trade war to expand its footprint in the American market, negotiating favorable terms for its exports.

Conclusion

The Trump-led trade war had far-reaching consequences, affecting the nations and economies directly involved, such as India. While some sectors face increased competition and market volatility, others stand to gain from diverted trade flows and new export opportunities. 

As the world adapts to evolving trade dynamics, India’s strategic engagement in international trade negotiations and ability to adapt to these changing dynamics will be crucial in leveraging the potential benefits of this global economic shift.

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