US-Canada Tariff War: What India Must Learn About Trade Leverage

A specific kind of trade dispute is currently underway that speaks more to the international than to the belligerents. This one is unfolding between Washington and Ottawa.On 22 August, the US imposed 50 percent tariffs on a wide band of Canadian exports. It includes dairy, alcohol, electronics, building materials, and apparel. In response, Canada unveiled counter-tariffs on more than 700 items within days. Canadian Prime Minister Mark Carney has promised to match Washington "dollar for dollar."The significant issue here is not the tariff rate. It is rather who is being ‘tarriff-ed’. Canada is not a rival power. It is a NATO ally and an intelligence-sharing partner. Most importantly, it is a signatory to the US-Mexico-Canada Agreement (USMCA), a free trade agreement that both governments negotiated and re-ratified within the last decade. The newly imposed tariffs of the US are applicable even to goods fully compliant with that agreement. This should matter to powers like India, surely not in the abstract, sympathetic way that distant conflicts usually matter. It matters because it reveals how trade power actually works today.'Unfair...': Mark Carney Slams US Move To Impose 50% Tariffs on Canadian GoodsFor a long time, especially in the post-war era, trade agreements were seen as a kind of insurance. Countries sign treaties, and the terms hold notwithstanding political mood swings. What Washington is doing with Canada today is showing that this insurance was always conditional on power, not paper.Almost 70 years ago, economist Albert Hirschman noted this in a 1945 study of interwar European trade, arguing that commerce between unequal partners is far from just a mutually beneficial exchange. It also led to dependence—and dependence serves as a lever. The stronger party doesn't need military might or sanctions to extract concessions from the weaker one. It just needs to make clear to the other that market access can be withdrawn at someone’s whim and fancy.The US currently is the importer of roughly three-quarters of Canada's exports. The reverse is nowhere close to true.So, the real issue is this imbalance. It points to the issue of “weaponised interdependence", a phrase coined by Henry Farrell and Abraham Newman when they were revisiting Hirschman’s thesis for the increasingly diversified global supply chains. It means whichever state sits at the centre of a trade or financial network can convert that structural position into coercive power, simply by controlling access to it. The tariffs on treaty-compliant Canadian goods are precisely this kind of move. The treaty was never really the constraint, and the market was always the leverage.We, in New Delhi, do not need to speculate about how this plays out. In February 2026, Washington and New Delhi announced an interim framework that lowered the effective tariff rate on many Indian goods to 18 percent and dropped the Russia-linked surcharge, in exchange for India’s commitment to increase purchases of US energy and technology and to moderate its Russian crude imports. India has continued to buy significant volumes of Russian oil, and the arrangement’s durability was later called into question after US courts struck down parts of the tariff architecture. Defence cooperation with the US has also deepened, but New Delhi did not formally trade defence commitments for tariff relief. The 18 percent rate was bought primarily through energy and Russia-related adjustments, not through a narrow market-access deal. Ottawa, despite far deeper integration and decades of privileged access, is now discovering that even that kind of loyalty does not exempt it from the same dynamic.So, the conclusion for Indian policymakers is neither to sit comfortably nor be alarmed. The current 18 percent tariff arrangement was won at a specific political moment, in exchange for specific strategic trade-offs. There is no structural reason to say this will be permanent. It can change if Washington's calculations on Russia or China, or defence ties, shift again. The same leverage that produced this deal can just as easily reopen it. On the Mat: India’s Self-Inflicted Trade Deal With Trump Will Haunt it for YearsIt is important to focus here on two things now. The first is to stop elevating any single trade relationship as the anchor of India's external economic strategy. So we should be pushing harder on the EU negotiations, deepening the already-signed UK deal, and not letting ASEAN and Gulf ties atrophy. Diversification is a hedge against exactly this kind of structural leverage, even when deployed against friends. Second, it is important to negotiate every future understanding with Washington assuming it is provisional, and to build in review clauses, contingency plans, and off-ramps, rather than banking on today's terms holding indefinitely.A smaller economy, plugged into a larger one, cannot be protected either by history or by law when the larger one decides the terms no longer suit it. There is absolutely no need for Delhi to relearn that lesson the hard way, that too, twice. (Pulkit Buttan is a PhD Scholar at TISS Mumbai. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

BECOME A MEMBER

The Tariff That Should Worry New Delhi Isn't Aimed at India

The US-Canada tariff war shows India why trade deals offer no guarantee, writes Pulkit Buttan.

Read Latest News and Breaking News at The Quint, browse for more from opinion

Topics: US Canada Tariffs