Editorial: Precipice of global trade war

India must strike a fine balance between protecting interests of domestic industry and promoting trade relations with US

As United States President Donald Trump fired his first salvo, imposing stiff trade tariffs on Canada, Mexico and China, there is a sense of trepidation across the world over the future of multilateral trade agreements. On its part, India needs to be prepared for a tough bargain ahead, striking a fine balance between protecting the interests of the domestic industry and promoting trade relations with one of the key strategic partners. Signalling the onset of protectionist policies, Trump signed a bunch of executive orders, imposing 25% additional tariffs on imports from Canada and Mexico and 10% additional tariffs on China — the three countries that account for around 40% of US imports. The extraordinary decision, triggering fears of a possible global trade war with far-reaching implications, is ostensibly meant to hold these countries “accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs” from flowing into the US. The affected countries have been quick to announce retaliatory measures. Though Trump had repeatedly labelled India a high-tariff nation, he has so far refrained from making any tariff moves against New Delhi. This could be a signal that bilateral trade negotiations may be on the cards later this month when Prime Minister Narendra Modi is scheduled to visit America. Trade and immigration are expected to dominate the bilateral agenda. India has already made it clear that it would never lean towards protectionism. One positive way of looking at the trade war between the US and China is that it could benefit India because Indian products have a competitive edge over Chinese goods due to low tariffs.

According to an analysis by Oxford Economics, India was the fourth-largest beneficiary of the trade diversions that occurred during 2017-2023 after Trump launched a tariff war with China in his first term. India has already begun lowering tariffs to favour US exports in a bid to avoid Trump’s tariffs. Duties on items primarily exported by the US, such as motorcycles with an engine capacity below 1,600cc, ground installations for satellitesand synthetic flavouring essences, among others, were slashed in the union Budget 2025-26. The country should leverage the bipartisan consensus in Washington for strong India-US ties to its advantage. In an increasingly uncertain global environment, India should play its cards carefully, and seize the opportunities that may arise in this period of uncertainty. It is clear that New Delhi wants to avoid a trade war with the US, as it is India’s largest trade partner and foremost export market. It has identified electronics, pharmaceuticals, textiles, auto components and chemicals to boost exports to the US amid the possibility of a trade war between Washington and Beijing. For now, India must be prepared for a larger disruption that is likely to take place. Trump has already talked about the reciprocity principle with respect to tariffs.

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