Trump Imposes 35% Tariff on Canada: Indian MSMEs Must Prepare for Ripple Effects

In a move that has shocked global markets and set the tone for renewed trade disruptions, U.S. President Donald Trump has announced a sharp escalation in tariffs on Canadian imports—from 25% to 35%—effective August 1, 2025. The announcement, made via a formal letter to Canadian Prime Minister Mark Carney, has intensified an already-strained North American trade relationship.

Trump’s justification stems from alleged fentanyl trafficking concerns and a persistent trade deficit with Canada, primarily driven by American oil purchases. However, the steep tariff hike signals a deeper strategic play as the U.S. President eyes similar duties—ranging from 15% to 20%—on a broader list of countries. So far, 23 nations have received such warnings.

Global Trade Tensions—Indian MSMEs Must Take Note

While Canada, America’s second-largest trading partner after Mexico, takes centre stage in this dispute, the broader implications extend globally, including for India’s micro, small and medium enterprises (MSMEs). For Indian exporters, particularly those engaged in indirect exports via North American value chains, the unpredictability of Trump’s tariff regime adds another layer of risk.

The latest round of U.S. tariffs has already led to retaliatory moves, with Canada distancing itself from its economic dependency on the U.S. and pivoting towards stronger trade alliances with the UK and EU. Indian businesses that have been engaging with Canadian or U.S. partners must now reevaluate supply chains, pricing strategies, and market exposure.

Fragile Global Trade Ecosystem

In a post on X (formerly Twitter), Carney hinted at America’s declining reliability as a trade partner. The messaging was clear: Canada's global trade ambitions are shifting. For Indian MSMEs looking at Canada as a steady partner, this pivot could translate into fresh opportunities, especially as Canada seeks to diversify away from its southern neighbour.

Meanwhile, Mr. Trump’s track record of inconsistent tariff rollouts—ranging from 145% on Chinese imports to a reduced 55% after talks—underlines a trend of negotiation through coercion. This instability has rattled global investors, despite the S&P 500's temporary resilience. For Indian exporters, it signals the need for adaptability and enhanced diplomatic navigation.

Digital Economy Under Scrutiny

Interestingly, Trump’s suspension of trade talks with Canada in June over its proposed digital services tax—targeting U.S. tech giants—underscores the growing friction around taxation in the digital space. Indian policymakers and MSME tech innovators should take this cue seriously. As nations debate digital taxation, Indian startups and exporters in SaaS and IT services could find themselves entangled in similar geopolitical flashpoints.

Looking Ahead: UMSCA and Beyond

Though the United States-Mexico-Canada Agreement (USMCA) currently protects eligible goods from Trump’s tariffs, the upcoming 2026 review could redefine trade terms. Indian firms operating through North American intermediaries or registered entities must monitor these developments closely.

SMEStreet Takeaway:
With global trade entering a new phase of uncertainty under Trump 2.0, Indian MSMEs should proactively diversify export markets, deepen EU and Asia-Pacific trade relations, and prepare for volatility in U.S.-centric routes. Policy clarity, diplomatic resilience, and trade agility will be key for staying competitive.