Model Answer

Trade wars involve reciprocal protectionist measures that disrupt established trade flows and global value chains. The US imposition of 50% tariffs on about $20 billion of Canadian goods in August 2026 creates both risks and trade-diversion opportunities for India.

Implications for India

1. Global trade uncertainty can weaken external demand. e.g: US–Canada bilateral trade exceeds $880 billion.
2. Disrupted North American supply chains may affect Indian firms integrated with them.
3. Retaliatory tariffs can raise global input prices and inflation.
4. Protectionism may encourage similar measures against other trading partners.
5. Slower North American growth can affect Indian merchandise and services exports.

Opportunities for Indian trade

1. Trade diversion can improve competitiveness of Indian substitutes. e.g: Tariff-hit Canadian consumer goods.
2. Indian manufacturers can gain market share in selected US sectors. e.g: Apparel, leather goods and jewellery.
3. Canada may diversify imports away from the US, creating opportunities for Indian exporters.
4. Supply-chain diversification can attract manufacturing investment to India.

Way Forward

1. Identify tariff-affected products where India possesses export competitiveness.
2. Accelerate trade agreements and diversify export destinations.
3. Improve logistics and quality standards to exploit trade diversion.

The US–Canada dispute creates opportunities but also reinforces global protectionism. India should strategically exploit trade diversion while building diversified and resilient export markets.