India could benefit as Trump starts tariff war with Canada and Mexico: MC analysis

President-elect Donald Trump’s decision to impose a 25 percent tariff on Canada and Mexico, except energy imports, could end up helping India, among other countries, especially on items that are India’s top exports to the United States, a Moneycontrol analysis of US trade data for last 10 years shows.

The US President on February 1 signed executive order imposing 25 percent tariff on Canada and Mexico, and 10 percent tariff on China. Energy imported from Canada would attract 10 percent tariff.

A list of top 25 commodities account for 75 percent of India’s merchandise exports to the US. While India has a 2.9 percent share of the US imports of these categories, Canada and Mexico have a 28.7 percent share of US' imports of these items.

Any tariff on Canada and Mexico's exports to US could put India in an advantageous position when it comes to items such as gems and jewellery, where America's neighbours together have a larger share of the pie.

While gems and jewellery was India’s top exports to the United States in 2023, its share in US imports, at 13.6 percent, was lower than that of Canada and Mexico combined, at 21 percent.

Similarly, while India had just a 6.8 percent share in iron and steel and associated industries, Canada and Mexico had a combined share of 64.4 percent in US imports.

India could also take advantage of US' demand for processed food, which already has a 9 percent share in US imports, in contrast to Canada and Mexico having a 20.5 percent share in US import under this category.

Canada and Mexico were already losing ground in 43 percent of these categories that US imports, as per a Moneycontrol analysis.

President-elect Trump’s decision to threaten to impose further 10 percent tariff on China could also aid India. Categories where Trump levied a 7.5 percent tariff on China, witnessed a drop of 24 percent in imports between 2018 and 2023. In contrast, categories where a 25 percent tariff was imposed witnessed a 47 percent decline in imports to the US.

An earlier analysis by Moneycontrol found that only a fifth of India’s $25 billion of additional exports to the US between FY19-24 came from traditional categories like medicine and jewellery, while the rest was from new avenues such as smartphones.

Trump's Tariff Threat

Trump's proposed tariffs are also expected to reduce America’s growing reliance on Canada and Mexico for its imports. While both the countries accounted for 26 percent of the US imports in 2016 when Trump first came to power, their share in the US imports had increased to 29 percent in 2023.