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Washington/New Delhi: In a move that could escalate global trade tensions, the United States has announced a sweeping 35% tariff on select Canadian imports, citing concerns over persistent trade imbalances and lack of cooperation in industrial policy alignment. The tariffs, which go into effect August 5, apply to Canadian steel, aluminum, lumber, and select auto components—sectors critical to the Canadian economy.
The White House said the action is part of a broader review of North American trade dynamics and “national economic security,” though it stopped short of invoking a full-scale rewrite of the USMCA trade pact. The announcement sparked immediate concern in Canada, with Ottawa calling the move “punitive, unjustified, and harmful to bilateral relations.”
At the same time, the Biden administration announced a temporary one-week tariff relief window for Indian exporters, delaying the implementation of planned tariff hikes on Indian pharmaceuticals, textiles, and auto parts. This exemption comes amidst an ongoing dialogue between USTR officials and Indian trade negotiators regarding a proposed digital trade framework and market access commitments.
Canada Reacts Sharply, Eyes WTO Challenge
Canadian Prime Minister Justin Trudeau condemned the US action, saying, “This is not how allies treat each other. Canada has always stood by fair trade principles, and we will not hesitate to defend our workers and industries.” Canadian officials are reportedly preparing to challenge the tariffs at the World Trade Organization (WTO) while simultaneously considering retaliatory measures targeting American agricultural products, tech services, and consumer goods.
Analysts warn that the imposition of such steep tariffs could worsen supply chain bottlenecks, especially in the North American construction and automotive sectors, where cross-border inputs are deeply integrated. US homebuilders and car manufacturers are expected to feel the pinch almost immediately, given their heavy reliance on Canadian wood, metals, and components.
Why India Was Spared—for Now
India’s exemption, though temporary, signals a nuanced shift in US trade diplomacy. The one-week relief window is being seen as a goodwill gesture ahead of the G20 Digital Trade Ministers’ Summit in Bengaluru next week, where India is expected to push for greater flexibility on data localization rules and duty-free access for MSME exports.
Officials in New Delhi welcomed the reprieve, but remained cautious. A senior commerce ministry official said, “While the week-long relief is appreciated, we are seeking a long-term resolution and tariff rollback. We are committed to deepening our engagement with the U.S. on trade standards, but we expect mutual respect for our development concerns.”
India has been lobbying hard to avoid the planned 15–18% hikes on pharmaceutical APIs, textiles, and auto parts—key export sectors for the country. According to trade sources, India’s argument is centered around its strategic importance in global health supply chains, particularly after its role in COVID-19 vaccine distribution and affordable generic drugs.
Global Ramifications and Realignment
The US decision marks the latest chapter in a global trend toward protectionist trade policies under the guise of national security and reshoring. While the Biden administration has been less erratic than the Trump era on trade, it has continued to enforce tariffs under Section 232 of the Trade Expansion Act—a clause that allows duties based on perceived threats to national security.
This latest move also comes amid mounting pressure from American steel and manufacturing lobbies, which have warned about the impact of cheap imports on domestic jobs.
Meanwhile, countries like Vietnam, Indonesia, and Mexico are closely watching how Washington balances its trade priorities. With supply chains already shifting post-pandemic, aggressive tariffs could accelerate diversification strategies, with exporters increasingly eyeing India and ASEAN nations as alternative partners.
Markets React, Commodities Surge
Following the announcement, commodity prices jumped. Lumber futures rose 6.2% in after-market trading, while aluminum prices on the LME climbed nearly 4%. Indian pharmaceutical stocks such as Sun Pharma, Dr. Reddy’s, and Cipla rallied modestly on hopes of extended tariff relief. On the other hand, Canadian manufacturing indices dipped as investors priced in potential revenue impacts.
What’s Next?
For India, the next seven days are critical. If negotiators can secure a tariff freeze—or better, a rollback—it could serve as a major boost for India’s export economy, especially MSMEs and pharma players. However, any failure could result in renewed trade friction just as India tries to ramp up global market access.
For Canada, the road ahead seems more turbulent. As the US appears firm in its position, a tit-for-tat tariff war might be brewing—potentially straining one of the world’s closest bilateral trade partnerships.
As trade alliances continue to evolve, and with elections looming in both the US and Canada, geopolitical trade strategy seems to be overtaking conventional economic logic.
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