Overview: 2025 Tariff War Led by Donald Trump

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• May 28, 2025

Whether you’re following the U.S. for politics, business, immigration, or even pop culture, there’s no denying its global influence. And last month, that influence shook the world economy to its core.

As soon as Donald Trump secured his second term as U.S. President, he wasted no time reigniting one of his most controversial economic strategies: an aggressive tariff war. Between January and April 2025, the U.S. government imposed sweeping new tariffs that blindsided economists and sent global strategists scrambling to reassess their trade and economic forecasts.

But before diving into the recent changes, let’s clarify the basics.

A tariff is a tax or duty imposed by a government on imported or exported goods. Think of it as a tool to regulate trade, protect domestic industries, or simply generate revenue.

For instance, a 20% tariff on an imported item worth $10 would add $2 to its cost. It’s a simple lever with complex consequences.

In Trump’s case, this lever was pulled hard.
The average effective U.S. tariff rate jumped from 2.5% to a peak of 27%, marking the highest level in over 100 years. As of May 2025, that rate stands at 17.8%, with the most significant blows aimed at China but also impacting several other key trade partners.

A Quick Snapshot of the 2025 Tariff War:

• Tariffs on Chinese goods soared to 145%, triggering a fierce trade retaliation.
• China responded with 125% tariffs on U.S. products and curbed exports of rare earth elements, which are vital for tech manufacturing.
• Canada and Mexico faced a 25% tariff increase, which was later softened under USMCA exemptions.
• On April 2, dubbed “Liberation Day” by Trump, he announced a blanket 10% tax on all imports, plus steeper levies on goods from 57 countries.

Markets didn’t take it well—global equities plunged, and fears of a looming U.S. recession gained traction. While some tariffs were delayed, many remained intact, slowing economic growth and intensifying criticism from economists who argue that Trump misinterprets trade deficits.

Despite the turmoil, there was an unexpected upside:

India emerged as an unlikely winner, positioning itself as a viable manufacturing alternative and a strategic trade ally amid the shifting global supply chain dynamics.

Let’s unpack the consequences of the tariff war in short and how India gained from the resulting global realignment.

How the Tariff War is Reshaping the U.S. Economy

This tariff war has led to a significant shift in global economic relations and trade policy, aimed at protecting American industries and reducing the trade deficit. However, the imposition of tariffs and retaliatory measures has quickly escalated into a full-blown economic conflict. While the goal was to create leverage for better trade terms, the ripple effects across the U.S. economy were far-reaching, impacting consumers, farmers, manufacturers, and global supply chains. Below are some of the most notable consequences the U.S. experienced as a result of the prolonged trade tensions

1. Increased costs for consumers and businesses

• Tariffs raised the prices of imported goods like electronics, appliances, and textiles
• American manufacturers relying on Chinese inputs faced higher production costs
• According to the National Bureau of Economic Research, the trade war cost U.S. consumers tens of billions in added costs

2. Damage to U.S. agriculture

• China imposed retaliatory tariffs on American soybeans, dairy, and pork
• U.S. farmers saw major export losses, prompting the government to roll out $28 billion in bailout support

3. Disrupted Global Supply Chains

• Companies were forced to diversify sourcing away from China, creating initial inefficiencies.
• Investment decisions were delayed due to trade uncertainties.

4. Slowdown in Manufacturing & Trade

• Manufacturing job growth stagnated.
• Exports to China dropped sharply, hurting companies in the tech, auto, and machinery sectors.

5. Weakened Global Trade Ties

• Allies such as the EU, Canada, and Mexico were also affected by steel and aluminum tariffs.
• The U.S.’s global image as a proponent of free trade was weakened.

How the Tariff War is Reshaping the Indian Economy

While much of the world was impacted by the U.S.- China trade standoff, India emerged with new opportunities to position itself as a competitive trade and investment partner.

With a relatively lower average tariff rate of around 27%, compared to countries like China, Vietnam, and Bangladesh, India holds a strategic edge. This makes Indian goods more attractive in the U.S. market, especially as American buyers look to diversify away from China.

An important advantage is that India offers a favourable environment for manufacturing setups, making it easier for companies to shift or expand their production here. While overall consumer demand in the U.S. may slow down, it will not disappear; India is well-positioned to become a key substitute supplier.

Here are some other major consequences and opportunities arising from the situation:

1. Shift in Global Supply Chains to India

• Companies like Apple, Samsung, and Foxconn have begun relocating part of their production from China to India.
• India’s government introduced the Production-Linked Incentive (PLI) Scheme to support local manufacturing.
• Sectors such as electronics, textiles, pharmaceuticals, and automotive components gained attraction.

2. Growth in Exports to the U.S.

• As U.S. tariffs made Chinese goods more expensive, buyers started sourcing from India
• Indian exports in apparel, engineering goods, and organic chemicals saw a boost
• S. imports from India grew steadily during and after the trade war

3. Strategic Trade and Tech Partnerships

• The U.S. increased engagement with India in key areas like defense, semiconductors, and clean energy
• The Indo-Pacific strategic framework gained momentum, aligning India closer with Western economies

4. India as a Counterbalance to China

• Multinational corporations and governments sought to diversify their China-centric risk
• India, with its large workforce, improving infrastructure, and stable democracy, presented a viable alternative

5. Increased Foreign Investment

• Global companies invested more in India as a “China+1” strategy
• India received record-high FDI inflows in sectors like electronics, fintech, and renewable energy

Why Tariffs Are Central to Trump’s Economic Vision

Donald Trump’s tariff push wasn’t just economic—it was strategic. Marketed as a bold move to fix trade imbalances and shield U.S. industries, it disrupted global supply chains and redrew the map of international trade.

Here are the top reasons behind his move:

1. Reducing Trade Deficits

Trump has long argued that the U.S. has been running large trade deficits with major economies like China, the European Union, and Mexico. By imposing tariffs, he aims to reduce imports and encourage domestic production, thereby lowering the trade imbalance.

2. Protecting Domestic Industries & Jobs

Tariffs serve as a protective measure for American manufacturers, particularly in industries such as steel, aluminium, and automobile production. By making imported goods more expensive, Trump hopes to boost domestic production, create jobs(but apparently, if we look at the unemployment rate in the US, it is only 4%, but still a manufacturing-dependent country), and strengthen the U.S. industrial base.

3. Countering Unfair Trade Practices

Trump has accused countries like China of engaging in unfair trade practices, including dumping goods at below-market prices, currency manipulation, and intellectual property theft. Tariffs are intended to pressure these nations into adopting fairer trade policies and protecting American businesses.

4. Leverage for Trade Negotiations

Tariffs are a bargaining tool to renegotiate trade deals in favour of the U.S. For example, they played a key role in renegotiating NAFTA, resulting in the USMCA (United States-Mexico-Canada Agreement). Similar tactics have been used against China during U.S.-China trade talks.

5. Political Strategy & Voter Base Appeal

Trump’s protectionist trade policies resonate with his core voter base, particularly in key manufacturing states like Pennsylvania, Michigan, and Ohio. By taking a hard stance on tariffs, he aims to appeal to working-class voters who feel left behind by globalization.

6. Combating Intellectual Property Theft

In response to concerns over intellectual property theft and forced technology transfers, especially involving China, the administration implemented tariffs as a means to pressure foreign entities into respecting U.S. intellectual property rights and to negotiate more equitable trade agreements.

Source: The white house.

While these tariffs have been framed as a means to strengthen the U.S. economy, they have also sparked retaliatory measures from other countries, potentially leading to trade wars and long-term economic uncertainty.

Other Facts:

• In the long run, countries might not rely on the U.S. as much as they do today.
• These tariff policies have drawn international criticism, with leaders arguing that such measures harm free trade and could adversely impact both the American and global economies. Economists warn that these tariffs could lead to higher prices for consumers, reduced demand, and further stress on global industries.
• According to the Global Times, the Chinese ambassador stated, “We are willing to work with the Indian side to strengthen practical cooperation in trade and other areas, and to import more Indian products that are well-suited to the Chinese market.”
• The U.S. trade deficit is likely to continue growing, particularly with countries like China. Some of the lost imports were offset by increased trade with other countries, but the deficit remained high.
• In some sectors, such as steel production and agriculture (with subsidies to farmers), there were some gains. However, U.S. consumers faced higher prices for everyday goods like electronics, clothing, and food.
• According to Reuters, Financial markets have experienced fluctuations amid uncertainties surrounding trade policies. For instance, on March 24, 2025, U.S. stock markets surged on optimism that the administration might adopt a more measured approach to tariffs.
• According to Paul Krugman (Nobel Laureate Economist), “tariffs are a tax on Americans. The result is going to be higher prices, especially on products we buy every day.”
• Mark Zandi, Chief Economist at Moody’s Analytics, suggested that U.S. tariffs would reduce economic growth in the short term, estimating that the U.S. economy could lose up to 0.5% of its GDP due to trade disruptions and higher prices. He also warned that businesses would face higher costs for raw materials, such as steel and aluminum, affecting industries ranging from construction to manufacturing.
• Trump’s tariffs shifted trade dynamics, prompting countries to seek alternative trade deals. For instance, China entered into new trade agreements with India, the Indian European Union, ASEAN countries, and others as part of efforts to circumvent U.S. tariffs.

One Nation’s Challenge, Another’s Opportunity

While the U.S. tariff war under President Trump caused significant economic disruption and strained international relations, it inadvertently opened doors for India to accelerate its global trade presence.

The reconfiguration of supply chains, the increased Western interest in India, and export diversification helped India reposition itself as a global manufacturing and investment destination.

If India is gaining ground due to global trade shifts, offering lower tariffs, easier manufacturing, and better access to the U.S. market, then investing in or relocating to India could be both a smart and strategic move.

Conclusion

In a world where global trade dynamics are constantly shifting, we empower entrepreneurs and corporations to establish operations in favorable jurisdictions and optimize their tax structures for long-term success, while remaining compliant amidst ever-changing trade policies. Whether you’re looking to mitigate risks from tariff barriers or simply want to expand into new markets with confidence, Mercurius provides tailored, end-to-end support to help your company thrive globally.

At Mercurius, we offer a range of services, including Audit, Taxation, Bookkeeping, compliance, and other paperwork needs. If you require personalized assistance or have any further questions, please don’t hesitate to contact us. We’re here to help you navigate the complexities of financial management with ease.