India Could Benefit from Trump’s Tariff Hike on China, Mexico & Canada

On Monday, U.S. President-elect Donald Trump announced plans to sign an executive order on January 20 imposing additional tariffs on imports from three key trading partners. Canada and Mexico face a 25% tariff hike, while goods from China will incur a 10% increase. The administration claims these measures aim to address issues related to drug dumping and immigration control.

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India's Position in the Tariff Strategy

India is notably absent from this initial set of tariff measures, which will take effect on Trump’s first day in office.

Mexico’s President, Claudia Sheinbaum, has expressed willingness to address migration concerns while emphasizing respect for human rights. However, she had earlier pledged retaliation in the event of a trade conflict.

Implications for India

As the U.S.’s largest trading partner, with bilateral trade surpassing $190 billion annually, India stands to benefit from these new tariffs. Between FY20 and FY24, India’s exports to the U.S. grew by 46%, reaching $77.5 billion, while imports rose by 17.9% to $42.2 billion.

With higher U.S. tariffs making imports from China, Mexico, and Canada more expensive, Indian products could become more competitive in the American market. Sectors like textiles, electronics, machinery, and pharmaceuticals could seize this opportunity to boost exports.

Ajay Sahai, Director General of the Federation of Indian Export Organisations (FIEO), highlighted the potential for increased demand for Indian goods. "The higher cost of imports from the affected countries may make Indian products more attractive in the U.S., providing exporters with a competitive edge," he said. Key export categories to the U.S., such as engineering goods, electronics, gems and jewelry, and pharmaceuticals, could see significant growth.

Additionally, U.S. companies may look to diversify supply chains, potentially increasing investment in Indian manufacturing to meet American standards and demand.

Cautionary Notes

Despite the apparent opportunities, experts urge caution. Ajay Srivastava, founder of the Global Trade Research Initiative, noted that Trump’s broader trade policies could include measures targeting India. He advised a “wait and watch” approach, emphasizing that initial actions related to drugs and immigration might be followed by other trade directives.

India’s solar panel industry, heavily reliant on Chinese imports, could face challenges if Beijing retaliates or alters export policies. For example, China recently reduced export rebates on photovoltaic (PV) products, raising costs for Indian companies that rely on Chinese components. Although India’s solar exports to the U.S. surged in recent years, higher input costs could curtail this growth.

Global Trade Dynamics and Risks

Trade tensions with China could yield short-term gains for India but may negatively impact global commerce in the medium term. Philippe Varin, Chair of the International Chamber of Commerce, warned that no country truly benefits in a protracted trade war. China’s dominance in global supply chains for products like smartphones (77.3%) and laptops (81.2%) limits the ability of nations to redirect trade flows.

Nonetheless, India’s exclusion from Trump’s tariff hikes may reflect a strategic U.S. interest in strengthening ties with New Delhi. According to Sahai, this development could pave the way for deeper trade collaboration and potential agreements that enhance India’s position as a preferred manufacturing hub.

In conclusion, while India has a window of opportunity to expand its U.S. market presence, it must tread carefully to navigate potential risks arising from global trade realignments and retaliatory actions.