Trade war officially begins: These Indian sectors likely to feel the heat first

US President Donald Trump announced Monday that the US will impose 25% tariffs on goods imported from Mexico and Canada starting Tuesday, pushing the region closer to a trade war and sending financial markets into turmoil.

The tariffs, which affect more than $900 billion in annual US imports from its two largest trading partners, triggered a selloff in global stocks and a sharp drop in bond yields.

Further, the US president has also reaffirmed that he would increase tariffs on all Chinese imports to 20% from the previous 10% levy to punish Beijing for failing to halt shipments of fentanyl to the US.

The tariffs will take effect at 12:01 am EST on Tuesday, according to a notice in the Federal Register. US Customs and Border Protection will begin collecting the duties, including a 10% levy on Canadian energy imports. However, Canadian Prime Minister Justin Trudeau announced retaliatory tariffs of 25% on C$155 billion ($107 billion) worth of US goods.

Beijing also later announced it will impose additional tariffs of up to 15% on imports of key US farm products, including chicken, pork, soy and beef. The tariffs will take effect from March 10. US grown chicken, wheat, corn and cotton will face an extra 15% tariff, while 10% additional duties will be levied on sorghum, soybeans, pork, beef, seafoods, fruit, vegetables and dairy products, according to the Commerce Ministry.

However, Mexico President Claudia Sheinbaum has vowed to respond, saying, "We have a plan B, C, D."

On Monday, Trump also temporarily suspended, with immediate effect, the delivery of all American military aid to Ukraine, just days after an unprecedented showdown with Ukrainian President Volodymyr Zelensky in the Oval Office.

This renewed global trade war is expected to shake the global markets, impacting countries like India. The equity investors have already been cautious over the new tariffs, and foreign investors have been pulling out of the Indian market since October now.

As per US estimates, the total goods trade with India was estimated to be $129.2 billion in 2024. The US goods exports to India in 2024 were $41.8 billion, up 3.4% ($1.4 billion) from 2023. The US goods imports from India totalled $87.4 billion in 2024, up 4.5% ($3.7 billion) from 2023.

The US goods trade deficit with India was $45.7 billion in 2024, a 5.4% increase ($2.4 billion) over 2023.

Imposing tariffs will increase the export cost for many pharma companies, thus affecting their margins as well. Meanwhile, India's pharma exports are expected to double to $65 billion by 2030 and touch $350 billion in value terms by 2047, moving to the top five position globally by diversifying its product basket, according to a report from last week.

While India is the largest supplier of generic drugs globally, accounting for one in five generic drugs sold worldwide, the nation ranks 11th in terms of export value.

India exports auto parts to the US at a duty of around 1-2%.

The Nifty Oil and Gas index was one of the biggest losers among sectors, falling over 1.5% during the morning trade. However, the BSE Oil and Gas index has tumbled 4.66% on Tuesday morning.

Tata Sons Chairman N Chandrasekaran on Monday said the demand for steel will continue to grow irrespective of the prevailing global geopolitical situation.