As Trump tariffs target China and Canada, doors open for India

Trade tensions flared on Tuesday after the US slapped stiff import tariffs on China, Canada and Mexico, but for a variety of Indian businesses this could open up potential opportunities.

Hopes that the US would defer the tariffs at the last minute were dashed as the tariffs took effect at 12.01 Eastern Time, exposing imports from Canada and Mexico to a 25% levy. China will face an extra tariff of 10%, in addition to a 10% levy slapped last month—which itself was on top of China-specific tariffs from the days of the first Trump presidency.

While Canada hit back with matching levies at the "unjustified" US action, China responded with its own tariffs, moved the World Trade Organization, and slapped curbs on several American businesses. Mexico said it will respond with its own measures on Sunday.

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The tariffs promise to raise prices of everything from avocados to automobiles in the US, as importers pass on the levies to consumers. However, some of India's exporters and importers might benefit, experts said, particularly in sectors where India has a strong manufacturing base and import lines are aligned with the US.

“The tariff on Canada will definitely help the Indian gems and jewellery sector, as tariffs on other countries often create opportunities for Indian exporters," said Vipul Shah, the past chairman of the Gem & Jewellery Export Promotion Council and managing director of Asian Star Co., a diamond company.

“However, we still need to wait for the final tariff plan of the U.S. If there are no tariffs on Indian goods in this segment, it will be a significant opportunity for us, as all the manufacturing facilities are going to remain here," he added.

India’s exports of gems and jewellery to the US stood at $9.91 billion in FY24, down from $14.56 billion in FY22.

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“The trade war is not in the interest of any country, and eventually, it is the consumers who bear the brunt. Demand will decline, and inflation will rise. It has turned into a street fight," said Pankaj Chadha, chairman of the Engineering Export Promotion Council, adding, “We will be able to present a clear picture once the final tariff plans are released."

However, the major concern is that India may not escape the Trump tariffs, slated to be announced on 12 March, with a reciprocal tariff plan expected on 2 April, Chadha added.

With Canadian goods facing higher levies, Indian companies in industries such as petroleum products, automobiles, machinery, plastics, and electrical equipment could tap into increased demand from US buyers looking for alternative suppliers, experts said.

Among the worst-affected

America's automobile sector is expected to be one of the worst-affected, since about half of the cars sold in the US are imported, primarily from China and Mexico. Besides, auto component makers are spread across North America, with the parts crossing borders multiple times before the final vehicle rolls out. Tariffs on every import are feared to sharply raise car prices as manufacturers pass on these costs to car buyers.

According to analysts at Kotak Securities, Cummins India, which makes diesel and natural gas engines for industrial and automotive markets, could gain from the tariffs. However, they noted that "several things need to fall in place" for the company to benefit".

World Bank data shows that in 2024, the US imported crude petroleum worth $103 billion, refined petroleum oil worth $12.9 billion, and fertilizers worth $3.1 billion from Canada. It also sourced copper cathodes worth $1.3 billion, gold worth $4.3 billion, ethylene polymers worth $2.2 billion, and plastics worth $2.1 billion.

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India’s import demand in these categories is substantial—$140.3 billion in crude oil, $42.5 billion in gold, $2.8 billion in copper, $2.2 billion in ethylene polymers, $1.3 billion in plastics, and $1.3 billion in fertilizers.

Exports of petroleum products to the US were $4.86 billion in FY22, $5.81 billion in FY23 and $5.83 billion in FY24.

“With US tariffs likely making Canadian products more competitive in the global market, India could evaluate sourcing these commodities from Canada at potentially lower costs, strengthening its trade partnership while reducing dependence on other high-cost suppliers," said Ajay Srivastava, founder, Global Trade Research Initiative (GTRI).

Representatives of the Society of Indian Automobile Manufacturers (SIAM) and the Plastics Export Promotion Council (Plexconcil) declined to comment. A query emailed to the commerce ministry remained unanswered.

"India will try to leverage the opportunity created by the trade war," said Pralok Gupta, associate professor at the Indian Institute of Foreign Trade, a commerce Ministry institute. "There are some segments like automobile components, drugs, and plastic products that can create a competitive edge for Indian exporters," Gupta said.

Easier said than done

However, growing in the US market may be easier said than done.

A big chunk of consumer goods from China imported into Canada were routinely re-exported to US duty-free, which might have drawn US attention, said Ravi Saxena, CEO and founder of Wonderchef, a kitchen appliances maker. The US tariffs will make it more difficult for Chinese products to compete effectively in the American market, creating a significant opportunity for India to expand its exports of electronic products, said Saxena.

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"However, for India to capitalize on this, India must step up its manufacturing capabilities, ensuring competitive pricing and, most importantly, meeting quality standards—an area where India has traditionally struggled."

"This is not the first time such an opportunity has presented itself. When Trump first took office nearly eight years ago, a similar window opened for India, but the country failed to strengthen its manufacturing sector and develop its production base effectively," Saxena added.

Passed on to customers

Pharma companies, including Aurobindo Pharma, believe that a potential tax on homegrown players could be passed on to customers, minimizing any impact on profitability.

"If the US government imposes 10% tariff, then the company will see around 6-6.5% impact on gross basis, which can be easily recovered by passing the prices to customer i.e. taking 5-6% price hikes," chief financial officer S. Subramanian told analysts last week.

“While there is optimism in the proposed India-US trade deal, should there be a reciprocal tariff on textile exports, the impact on the industry may be minimal. This is due to India's positioning as a key global exporter of garments, cotton textiles and man-made fibre," said Jayanth Kashyap, investment lead at Good Fashion Fund, an investment company.

Also read | Delhi, London talk trade again, as tariff wars flare

“In plywood, though there may be an opportunity, India is unlikely to benefit as Indian exporters struggle to comply with the stringent export norms set by the US. Additionally, India itself imports plywood from Vietnam and Malaysia, making it more likely that these countries will be in a better position to tap into the opportunity," said J.K. Bihani, president of Haryana Plywood Manufacturers Association.

India’s exports to China stood at $16.65 billion in FY24 and $15.30 billion in FY23, while imports from China to India stood at $101.74 billion in FY24 and $ 98.50 billion in FY23.

Major exports from India to China in FY24 included iron ores ($3.63 billion), followed by engineering goods ($2.65 billion), marine products ($1.37 billion), organic and inorganic chemicals ($1.23 billion), petroleum products ($1.16 billion).

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