The U.S. recently enacted tariff hikes targeting major trade partners like Canada, Mexico, and China, with temporary pauses for some goods. A 10% tariff hike between the U.S. and its partners would result in mutual losses, affecting exports and benefiting competitors like China, Mexico, and Australia. These tariffs, including actions against India and the EU, highlight the interconnected nature of global trade, where disruptions can cascade, causing significant economic uncertainty worldwide.
The United States recently implemented tariff hikes under the Trump administration, targeting trade partners like Canada, Mexico, and China. However, some of these tariffs were temporarily paused for certain Canadian and Mexican goods until April 2. In his address to Congress, Trump also singled out other countries such as India, the European Union, Brazil, and South Korea, stating, "have used tariffs against us for decades."
But what would happen if the U.S. raised tariffs on a country’s products by 10%, and that country retaliated with the same increase on U.S. goods? To understand the potential impact, we turned to the World Tariffs Simulator, developed by the global trade data platform Observatory of Economic Complexity. The simulator uses a trade prediction model accounting for factors like geographic proximity, economic size, cultural links, and historical trade patterns to estimate changes in trade flows between nations.
Let’s explore the implications of a hypothetical 10% tariff hike between the United States and its trading partners.
U.S.-India Trade: Both Hurt, But the U.S. Feels More Pain
India relies heavily on the U.S. as its largest trading partner, while for the U.S., India ranks only 10th. Here's how a 10% tariff hike would affect trade between the two nations:
India → U.S.
Change in Exports: -$6 billion
Biggest Beneficiaries: China (1billion), Canada (1 billion), Canada (1billion), Canada (812 million), Mexico (345million), and Russia (345 million), and Russia (345million), and Russia (254 million).
U.S. → India
Change in Exports: -$10.3 billion
Biggest Beneficiary: Australia ($1.4 billion).
Despite the significant losses for India, the U.S. would experience an even larger decline in exports, highlighting how interconnected trade relationships can amplify economic repercussions.
U.S.-Canada Trade: A More Balanced Impact
Canada, one of the U.S.'s top trading partners, would also face substantial losses in a tariff war. However, for every 100Canadaloses, the U.S. would only lose100 Canada loses, the U.S. would only lose 100 Canada loses, the U.S. would only lose 37. Here’s the breakdown:
Canada → U.S.
Change in Exports: -$54 billion
Biggest Beneficiary: Saudi Arabia ($8.5 billion).
U.S. → Canada
Change in E
xports: -$20 billion
Biggest Beneficiary: The Netherlands ($2.2 billion).
While Canada would initially bear the brunt of the losses, American exporters wouldn’t be immune to the ripple effects.
U.S.-China Trade: A High-Stakes Exchange
In the case of China, the U.S. would face significant losses, albeit slightly less than China. For every 100 China loses, the U.S. would lose100 China loses, the U.S. would lose 100 China loses, the U.S. would lose 67. Here’s how the numbers stack up:
China → U.S.
Change in Exports: -$43 billion
Biggest Beneficiaries: Mexico (7.8billion) (7.8 billion) and Vietnam (7.8billion) and Vietnam (5 billion).
U.S. → China
Change in Exports: -$29 billion
Biggest Beneficiary: Japan ($2.9 billion).
The U.S.-China relationship underscores the global interconnectedness of supply chains, with third-party countries like Mexico and Vietnam standing to gain from disruptions.
U.S.-Mexico Trade: An Unexpected Twist
The trade dynamics with Mexico tell a different story, as the U.S. would suffer more significant losses than its southern neighbor. For every 100 Mexico loses, the U.S. would lose100 Mexico loses, the U.S. would lose 100 Mexico loses, the U.S. would lose125. Here’s the impact:
Mexico → U.S.
Change in Exports: -$15.2 billion
Biggest Beneficiaries: Canada (4.7billion), China (4.7 billion), China (4.7billion), China (2.3 billion), and Saudi Arabia ($1 billion).
U.S. → Mexico
Change in Exports: -$19 billion
Biggest Beneficiary: The Netherlands ($4 billion).
This scenario highlights the deep integration of the U.S. and Mexican economies, where disruptions in one direction can disproportionately hurt the other.
The Real-World Context: Tariffs in Action
For some countries, this hypothetical scenario is already a reality. Trump’s tariff hikes initially targeted the U.S.'s top three trading partners—Mexico, Canada, and China—impacting an estimated $2.2 trillion in annual trade, according to Reuters. These actions included a 25% tariff on Canadian and Mexican goods and an increase in tariffs on Chinese imports from 10% to 20%. However, fuel imports from Canada were exempt, subject only to a 10% tax.
The market’s reaction was swift and negative, prompting Trump to delay tariffs on products covered under the United States-Mexico-Canada Agreement (USMCA), a trade deal finalized during his first term. This temporary reprieve, which lasts until April 2, means that many tariffs on Canadian and Mexican goods remain on hold. Still, the on-again, off-again nature of these tariffs—reported by Axios to have shifted at least four times since February—adds uncertainty to the global trade landscape.
The interconnectedness of global trade means that tariff hikes rarely result in clear winners. While some countries and industries may benefit in the short term, the broader economic disruptions can lead to significant losses on all sides. Whether targeting India, Canada, China, or Mexico, the ripple effects of U.S. tariff policies demonstrate the delicate balance of international trade—and the high stakes of disrupting it.
India-US Trade Tariffs: Challenges and Strategic Responses
India faces a significant challenge as the United States imposes reciprocal tariffs on Indian auto imports, mirroring India's high tariffs on automobiles, chemicals, and electronics. With auto tariffs exceeding 100% on US vehicles, these measures risk disrupting bilateral trade worth $129.2 billion in 2024. The US is India’s largest trading partner, with Indian exports to the US amounting to $87.4 billion and imports at $41.8 billion, leaving a trade deficit of $45.7 billion. Key Indian exports include packaged medicines, diamonds, and broadcasting equipment, while major US exports include crude petroleum, coal briquettes, and gas turbines. Given that 17.7% of India’s exports are US-bound, these tariffs could significantly impact critical industries.
India’s tariff structure has historically leaned protectionist, with tariffs on US goods rising from 11.59% in 2018 to 15.30% in 2022, while US tariffs on Indian goods have remained relatively stable. In response, the US has adopted a reciprocal tariff policy, posing risks to Indian exporters.
To offset these challenges, India is diversifying its trade avenues. Strengthening regional alliances like BRICS, ASEAN, and the Shanghai Cooperation Organisation (SCO) provides alternative markets. Finalizing free trade agreements (FTAs) with the EU, UK, Canada, and Australia offers preferential trade terms. Initiatives like ‘Make in India’ aim to reduce import dependency, especially in electronics and automobiles, while the Bharat Trade Net enhances trade efficiency. Additionally, India seeks to capitalize on the US-China trade war by positioning itself as an alternative manufacturing hub.
India is also deepening trade ties with the Middle East, Africa, and Latin America, focusing on energy, textiles, and pharmaceuticals. Strategic alliances with Quad members and the Indo-Pacific Economic Framework (IPEF) aim to secure critical raw materials and expand global supply chains.
By leveraging its participation in key economic blocs and diversifying export markets, India can mitigate the impact of US tariffs. Strengthened domestic manufacturing and improved trade infrastructure can drive competitiveness and reduce reliance on the US market. While the tariffs pose immediate challenges, they also present an opportunity to enhance India’s global trade footprint and economic self-reliance.
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