With US President Donald Trump imposing retaliatory import tariffs and threatening even more (“It’ll be 25% and higher, and it’ll go very substantially higher over a course of a year”) the world is facing a trade war. Global markets have turned volatile and India’s Nifty 50 index has fallen 1.2% over the past month.
The ordeal started with President Trump issuing three executive orders on February 1 to impose import tariffs on China, Canada, and Mexico. The US levied a 10% import tariff on all Chinese goods and a 25% duty on imports from Mexico and Canada, effective February 4. However, President Trump delayed the duties on Mexico and Canada for 30 days after reaching deals with them. Trump followed this by imposing another 25% import duty on all steel and aluminium imports, including Canada and Mexico, effective March 12. The duty will also include finished metal products.
President Trump has indicated further retaliatory tariffs of 25% on imports of automobiles, expected to be rolled out in April 2025 after saying that the EU and India have unfair taxes on US automobile exports. Trump is also planning additional 25% import duty on the pharmaceuticals and semiconductor sectors to promote domestic factories in the US.
With reciprocal tariffs dominating headlines, we look at the countries with the highest tariffs on imports from the US in this chart of the week.
The European Union and India give contrasting responses to the tariffs
In the Union Budget FY26 meeting, India reduced its average import tariff to 10.7% from 11.7% in response to the US's threat of tariffs on pharmaceutical and automotive products. India has reduced customs duties on bourbon whiskey by 50 percentage points to 100% and levies on high-end motorcycles by 20 percentage points to 30%.
A report by Nomura suggests that even with increased US tariffs from 15-20%, the decline in Indian exports to the US would be approximately 3% to 3.5%. The relatively minor fall is attributed to India's efforts to diversify its export markets, enhance value addition, and develop alternative trade routes. S&P Global Ratings also believes India's economy is more oriented towards domestic products and less reliant on exports, further lowering the effects of tariffs.
The 25% tariffs by the US on steel and aluminium imports will also apply to the European Union (EU) despite the EU signing a free trade agreement with the Biden administration. This is despite European countries like Germany, Ireland, Italy, and France having low import tariffs on US goods due to the US importing a large number of goods from the region. Ireland has an average tariff of 6.5%, while Italy, Germany and France have an import tariff of 2% each.
European Commission President Ursula von der Leyen said that the EU will take proportionate countermeasures to protect its interests. EU Trade Commissioner Maroš Šefcovic emphasised the potential for these tariffs to fuel inflation and disrupt global trade. The EU is considering various retaliatory measures, including tariffs on iconic American products and potential legal challenges through the World Trade Organization (WTO).
These steel and aluminium tariffs, revoking previous agreements that had allowed tariff-free quotas for UK steel exports, also impact the country’s steel industry. These free trade agreements helped the US with lower import tariffs of 3.8% for US goods in the UK. However, the US is the UK's second-largest steel export market, with approximately 2 lakh tonnes of steel, valued at over £400 million, exported annually. The reintroduction of these tariffs will promote domestic steel production in the US but poses a substantial threat to the UK's steel industry, potentially leading to decreased exports and financial losses.
China and Canada respond to the US tariffs
After Trump announced the tariffs, Canada responded on February 3 with President Justin Trudeau imposing a 25% duty on imports of all US goods. This was followed by Mexico’s President Claudia Sheinbaum taking tariff and non-tariff measures in defense of Mexico’s interests.
The moves prompted President Trump to hold talks with the two countries and delay the implementation of the tariffs on Mexico and Canada by 30 days.
The tariffs will put pressure on consumer prices, contributing to inflation in the US. Federal Reserve officials have expressed concerns that these trade policies could disrupt supply chains and increase costs for businesses and consumers.
Speaking on the tariffs on Mexico and Canada, the US National Association of Manufacturers President and CEO Jay Timmons said, “A 25% tariff on Canada and Mexico threatens to destroy the very supply chains that have made US manufacturing more competitive globally. Manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products competitively and putting American jobs at risk.”
In response to the US levies, the Chinese Finance Ministry announced a 15% tariff on coal and liquefied natural gas and 10% on crude oil, farm equipment, large-displacement vehicles and pickup trucks from the US. While announcing the tariffs, the Finance Ministry stated, “The unilateral imposition of tariffs by the US seriously violates the rules of the World Trade Organization. It is not only unhelpful in solving its own problems but also damages economic and trade cooperation between China and the US.”
China has also applied export restrictions on critical minerals, such as tungsten, tellurium, ruthenium, molybdenum, and ruthenium-related items.
