Trump declares nuclear war of tariffs

Written by: Aarthi Ramnath, Raghav Bikhchandani & Yash Budhwar

Trump declares nuclear war of tariffs

Trump unleashed a tsunami of tariffs—as promised—on America’s three largest trading partners—Canada, Mexico and China. Experts are already predicting doomsday effects on the global economic order.

What Donald did: He slapped a 25% duty on almost all imports from Mexico and Canada—with a glaring exception for oil. Chinese goods will be taxed a mere 10%. The reason is truly Trumpian: To ‘protect’ Americans from “the major threat of illegal aliens and deadly drugs…including fentanyl.”

The immediate fallout for the US: These tariffs will increase the prices of various products in the US—fuelling the already high inflation, disrupting supply chains and resulting in loss of jobs. If they stay in place, expect the economy to slow down—which will have all sorts of ripple effects on the world.

Canada strikes back: Within hours, PM Justin Trudeau announced retaliatory tariffs of 25% on $155 billion-worth of US products—which include American alcohol, agricultural produce, clothing, shoes, household appliances, furniture, lumber and more. Mexico pledged to follow suit—but the details will be released today. China hasn’t said a word. BTW, Trump’s executive order also threatens to further hike tariffs if these countries retaliate. So we are all bracing for that escalation next.

Interesting side note: There are signs of ‘red state rage’ in Canada—and not just in Ottawa:

While Canada’s government detailed the steps it would take, individual provinces were also moved to act. Ontario and Nova Scotia announced that they would pull American beer, wine and spirits from their government-owned liquor stores. British Columbia’s premier announced that the province will stop sales of alcohol produced in “red states,” a reference to those with strong Republican support. (Mr. Trudeau indicated that Canada would tax Florida orange juice, Tennessee whiskey and Kentucky peanut butter — products from states that Mr. Trump carried in November’s election.)

The biggest losers: will be carmakers, construction and food production—on all sides:

Manufacturing in the American auto industry is spread across the three countries. 16% of the value of a US-made car is derived from work done in Mexico or Canada.
In 2023, the US imported over $45 billion in agricultural products from Mexico—including strawberries, raspberries, tomatoes and beef.
Also: the US imported $40 billion in beef, pork, grains, potatoes and rapeseed from Canada—it and Mexico combine for over 20% of the US’s cement imports.
Also in 2023: Canada and Mexico were the US’s largest trading partners for petroleum products—at 1.6 billion and 332 millions of barrels respectively.

In other words, this is not going to end well for anyone on either side of the border. Irony alert: needless to say, US businesses across the board are up in arms.

But, but, but: Most financial gurus expect the smaller trading partners to pay the greater price:

The market needs to structurally and significantly reprice the trade war risk premium. For Canada and Mexico, we see this trade shock — if sustained — as being far larger in economic magnitude than that of Brexit on the UK

While the Canadian dollar has fallen to a 22-year-low—its weakest since 2003—the US dollar has surged. The euro and Mexican peso have also taken hits. As for the rest—”oil jumped and equity markets turned red.”

The big picture: Trump’s big plan is to use revenue from tariffs to pay for massive tax cuts. In fact: “He has, at times, talked of replacing income taxes in the US with tariffs.” So he’s unlikely to stop here—and India will definitely be next on the list—‘Howdy Modi’ be damned. That said, Trump’s eagerness to use the US economy as a nuclear weapon will backfire in the long run:

Mr. Trump’s legal rationale for the tariffs is likely to be challenged in American courts. It could also dissuade other countries from negotiating trade pacts with the United States out of fear that the president could arbitrarily scrap them by using his emergency powers. “If the president can with the stroke of a pen and for no good reason completely upend a North American supply chain that has been in place for more than 30 years, why would a foreign government be willing to expend all the political capital needed to enter into a trade agreement?” said [Cato Institute expert] Scott Lincicome

Reading list: CNN and BBC News offer overviews—but the best (with charts) is in the Financial Times (splainer gift link). New York Times has more on the impact on the global economic order. The Hindu has more on India’s efforts to ward off Trump’s wrath by cutting tariffs on US products. Wall Street Journal (splainer gift link) is best on the ‘precision strikes’ planned by Canada and Mexico.

The budget’s income tax bazooka

The context: On Saturday, finance minister Nirmala Sitharaman unveiled the Union Budget 2025-26. Expectations were dim: consumer satisfaction with recent budgets had dropped from 73% in 2022 to 67% in 2024. Plus, more than 37% of respondents feared a decline in their living standards this year—the highest level of pessimism recorded since 2013.

What happened now: Income tax cuts zindabad—or what Mint calls a ‘mini bazooka’: “[Sitharaman] cut personal income tax sharply to leave as much as Rs 1 trillion in the hands of the people in the hope that people will spend.” But what does that mean for you? The new rule says zero tax for incomes up to Rs 12 lakh (Rs 1.2 million). Sounds simple… except it’s not:

The confusion arises because the new structure offers a tax rebate, which effectively cancels out the tax payable for individuals earning up to Rs 12 lakh. The new structure does not categorically mention zero tax till Rs 12 lakh income.

Here’s Hindustan Times’ example of how it works. Let’s say, you earn Rs 12 lakh a year. Your tax would be calculated as per the new tax slabs which are:

Rs 0 - 4 lakh: No tax
Rs 4 - 8 lakh: 5% tax
Rs 8 - 12 lakh: 10% tax
Rs 12 - 16 lakh: 15% tax
Rs 16 - 20 lakh: 20% tax
Rs 20 - 24 lakh: 25% tax
Above Rs 24 lakh: 30% tax

So, you end up paying:

5% on Rs 4 lakh (Rs 4-8 lakh) - Rs 20,000
10% on Rs 4 lakh (Rs 8-12 lakh) - Rs 40,000
Total: Rs 60,000

But thanks to the rebate (amounts displayed below), you pay zero tax.

As for the richer Indians: The rebate applies only if your total income is Rs 12 lakh or below. If you earn more, tax is calculated on your entire income as per the new slabs.

For example, if your salary is Rs 16 lakh, here’s how your tax is calculated:

Rs 0 - 4 lakh - No tax
Rs 4 lakh - 8 lakh - 5% tax on Rs 4 lakh = Rs 20,000
Rs 8 lakh - 12 lakh - 10% tax on Rs 4 lakh = Rs 40,000
Rs 12 lakh - Rs 16 lakh - 15% tax on Rs 4 lakh = Rs 60,000
Total tax = Rs 1,20,000

The same method applies to higher income brackets like Rs 16-20 lakh, Rs 20-24 lakh, and above Rs 24 lakh, with tax rates increasing as income rises.

Point to note: In 2023, only 1.6% of Indians (22.4 million people) actually paid income taxes. OTOH, they also account for a great part of consumption in India—hence, the rebate:

India’s economy, the fastest growing large economy in the world, is slowing down sharply. In the second quarter of 2024-25, India's gross domestic product (GDP) growth was just 5.4% as against 8.1% in the same period last year. One of [the] biggest causes for this was a sharp fall in urban consumption. Consumption is what you and I spend, and this accounts for 62% of the GDP.

As for the rest: BBC News has a break-up of budget takeaways across major growth pillars. For a much nerdier analysis, check out PRS India. Economic Times has more on what it means for investors. Indian Express looks at its politics: farmers, Bihar and the middle class.

Volkswagen takes Indian govt to court

Volkswagen has sued the Indian government over an “impossibly enormous” tax demand of $1.4 billion—levied on the car company back in September 2024. The heart of the issue:

Indian authorities alleged Volkswagen imported "almost the entire" car in unassembled condition — which attract a 30-35% tax applicable on CKDs, or completely knocked down units, but evaded the levies by mis-classifying them as "individual parts" coming in separate shipments, paying just a 5-15% levy.

In simple terms, Volkswagen says it shouldn’t pay higher taxes because it didn’t import car parts as a complete “kit.” A “kit” is like ordering a chair online, where everything you need to assemble it comes in one package. Instead, it says it shipped parts separately and combined them with local ones to build the cars. Plus, Volkswagen India said that they had already informed the government of its “part-by-part import” model in 2011.

What this means for Volkswagen: If it loses this battle, it will have to pay $2.8 billion in total including penalties—which is more than its entire sales in India last year ($2.19 billion). The car manufacturer—which is already grappling with weak demand in Europe—is only a small player in India's 4 million units a year car market—the world's third biggest.

What this means for India: The carmaker had planned to invest $1.5 billion in India but “the tax notice ‘deals a body blow’ to the much-advertised ‘policy of ease of doing business in India for foreign investors,’ the company said.” The hearing is on Wednesday.

Point to note: High taxes and prolonged legal disputes have often been a sore point for foreign companies in India. For example, Tesla has been publicly complaining about high taxes on imported cars and Vodafone has fought cases related to taxes too. (Reuters)

what caught our eye

mahakumbh mela update

The Print has a ground report detailing the excesses that make up ‘Elite Kumbh’—luxury tents, leisurely sattvik breakfasts, private boat rides to the ‘VIP Sangam’ and more.

business & tech

Security researchers have flagged that DeepSeek's open-source AI models are easier to manipulate, and more susceptible to cyberattacks, than their Amreeki counterparts.
Say hello to OpenAI’s new o3-mini reasoning model, a version of which comes free with ChatGPT.
The Verge has a must-read on how Sam Altman’s planned OpenAI data centre empire—called Stargate—is built on incredibly shaky foundations.

sports & entertainment

Robert Langdon is back! Author Dan Brown has penned a new thriller titled ‘The Secret of Secrets’, starring the fan-favourite investigator of all things symbols. It's slated for release on September 9.
‘Severance’ superfans, you can now buy the show’s latest tie-in goodie—the self-help book ‘The You You Are’, written by fictional character Dr. Ricken Hale.
The cast for Christopher Nolan’s next film ‘The Odyssey’ continues to take shape—Elliot Page and Himesh Patel are the latest to sign on.
The Beyhive is buzzing—Beyoncé became the first Black woman to win the best country album Grammy for 'Cowboy Carter'. She's also announced a concert tour!
‘It Ends with Us’ director Justin Baldoni has updated his lawsuit against the film’s star Blake Lively with new allegations. The bizarre bit: Apparently the character Nicepool—played by Lively’s husband Ryan Reynolds in ‘Deadpool v Wolverine’—constitutes ‘bullying’.
Youngster Abhishek Sharma blitzed 135 runs off just 54 balls in India’s thumping 150 run-win over England last night. This is the highest score by an Indian in men’s T20Is.
Another day, another sh*tshow in franchise T20 cricket—this time, Bangladeshi team Durbar Rajshahi is under fire for not paying its foreign players, and leaving them stranded at a hotel in Dhaka. ESPNCricinfo has more masala.

health & environment

Scientists are developing a new kind of brain implant—from small clusters of brain cells—that could revolutionise how Parkinson’s disease is treated.
The US’ chief drug agency has approved suzetrigine, a potent painkiller that’s also the first non-opiod to be approved in decades.
Trump’s global spending freeze on USAID has halted the organisation’s flagship program—which develops more effective second-generation vaccines to prevent the spread of malaria, particularly across Africa.
The Guardian has a fascinating read on how ‘female narcissism’ is misdiagnosed, with some experts believing that standard testing misses the ways an antisocial personality manifests itself in women.

as for the rest

In Uttarakhand’s Uniform Civil Code, love needs a permission slip and some red tape—74 relationships are off-limits, and even first cousins must get a religious nod and a registrar’s approval, who can still veto it for “public morality.”
Trump, in classic all-caps fashion, vowed to cut off US funding to South Africa, claiming land confiscation and unfair treatment of “certain classes of people,” because apparently he’s the global referee now.
Syria’s new interim president—Ahmed al-Shara—chose Saudi Arabia for his first foreign trip, signalling a big shift away from Iran and a fresh start with the Gulf in the post-Assad era.
Just before the fatal midair crash in Washington, the American Airlines jet abruptly pulled up mid-descent—investigators are now probing whether the pilots spotted danger.
Zakia Jafri—an activist who spearheaded the fight for justice for the victims of the 2002 Gujarat riots—has passed away at the age of 86. She is now laid to rest in the same graveyard as her husband Ahsan, a Congress MP who was killed in the riots by a Hindu mob.

Three things to see

One: Humaari Sunita Williams set a new world record for the total spacewalking time clocked by a woman—ammounting to 62 hours and six minutes—surpassing Peggy Whitson. It is also the fourth longest cumulative time overall. The recent spacewalk was Williams’ ninth and her fellow astronaut Wilmore’s fifth—and the record was broken during their mission to remove radio communications unit and to collect microbiological samples from the exterior of the ISS. See a clip from their 5.5 hour spacewalk below. (Gizmodo)

Two: While looking for pangolin poachers, researchers came across a rare sighting—the elusive rusty-spotted cat—spotted in the jungles of West Bengal’s Purulia district for the first time. This is the world’s smallest and lightest known cat—with 80% of its population native to India. See the clip of the spotting below. (The Print)

Three: Lady Gaga debuts a new song! As part of her closing act at the LA fires benefit concert, the pop star sang ‘All I Need Is Time’—a song of hope she specifically wrote for the event with her fiance Michael Polansky. (Variety)