India Must Examine Its Strategic Options as Trump's Tariffs Kick In

An ability to capitalize on supply-chain shifts will determine whether we emerge stronger in the new global economic order

- PRACHI MISHRA

The recent wave of tariff announcements by the Trump administration in the US marks a significant shift in global trade dynamics. With 10 percentage points (pp) of additional tariffs on Chinese imports already implemented, and a flurry of additional announcements (25pp additional tariffs on Mexico and Canada, plus additional tariffs on steel and aluminum), there is a lot on the US policy plate. Further, there is the possibility of even more drastic measures like "reciprocal tariffs" (with the possible inclusion of foreign value added taxes) and duties on US imports of critical minerals, apart from universal tariffs on all imports.

We are realizing that all this was not just campaign rhetoric. Unlike during Donald Trump's previous presidency, when tariffs on Mexico and Canada were threats that never materialized, this time they may soon become reality. Aspects like the tenure of these tariffs and gaps between threats and their actual implementation will determine the behavioral responses of economic agents and ultimately their economic impact.

Two key patterns have emerged. First, energy considerations remain paramount, evidenced by the exclusion of Canadian oil and energy products from Trump's executive orders. Second, inflation concerns may have moderated the US approach towards China, where baseline expectations of much higher additional tariffs, with potential increases of up to 60pp on certain industrial products, have been tempered, though yet another 10pp hike may be in the offing. This relative restraint likely stems from Trump's campaign narrative that was critical of the previous leadership for letting inflation spiral out of control.