Moneycontrol Pro Panorama| How to ride the tariff dragon

Tariffs are extremely hurtful to the countries that face them and tariff rate on India is now a steep 50 percent.

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In the March 28 Panorama, we took a stab at “How to face your tariff dragon” when US President Donald Trump first threatened trading partners with a 25 percent tariff. At that time, much of the tariff details were up in the air and uncertainty had gripped everyone. Trump’s penchant for deals meant that anything could happen between America and the world it trades with.

Five months since, tariffs have arrived; for some with vengeance and for others with consideration. India is unfortunately in the vengeance category having been slapped penalties, along with tariffs, for dealing with Russia. Good, bad, or ugly, the tariff dragon is now here, and the only option is to ride it.

How do we do that? It is tempting to hug the possibility of diplomatic channels successfully convincing America to dial down on its tariffs and penalties. Our Thursday’s Panorama explored whether India would buckle under the pressure or retaliate. There is no way to measure the outcome of what will come out of the 21-day window for negotiations on penalties. What investors can do is assess the impact and take investment decisions accordingly. Here is a 3-point cheat sheet to weather the tariff storm:

Understand it’s a dragon

Investors must understand the status quo. Tariffs are extremely hurtful to the countries that face them and tariff rate on India is now a steep 50 percent. US accounts for roughly 20 percent of India’s goods exports and a heavy tax on them would mean this share would go down sharply and drag exports. But tariffs are also pitting India against its competitors such as Vietnam, China, Thailand, and South Korea. Our Chart of the Day shows that US has levied the highest tariffs on India, making Indian goods uncompetitive on price. Economists anticipate that the export decline would shave off 0.5 to 1.0 percent from GDP growth. Anubhav Sahu explains here how Indian exporters may not be able to offset the loss of business to US.

This makes India’s equity valuations look extremely pricey and perhaps they are. All hopes of markets being unscathed must be given up now. Ananya Roy in her column suggests that investors avoid sectors that would be hard hit. “Short to medium-term investors would do well to steer clear of sectors most at risk, as explained above. As long as Trump controls trade relations, even if he shifts his “complaints” towards some other economy, uncertainty through indirect impact is likely to persist. This would affect sectors like IT which are significantly dependent on the US economy,” Roy writes.

Don’t show fear

The impact of the tariffs won’t be pretty as is apparent. But panic serves nobody and turning around to run would be folly. Investors must therefore apply discretion in their investments. Investors must also remember that the Indian economy is a capital-starved one and typically capital flows into countries with deficit from countries with surplus over time. While episodes of turmoil and outflows, both brief and long, may be seen, a capital deficit economy is unlikely to hit the brakes on growth. As for markets, here is a nugget from investment expert and author Morgan Housel from his write-up on Collab Fund’s blog. Housel points out that former President Bill Clinton listed a series of triumphs of the US economy in his state of the union speech in January 2000 but what followed was the worst decade for American stock markets. Ten years later, former President Barack Obama highlighted the difficulties of the US economy saying home values have declined, businesses have shuttered and unemployment has shot up. What followed Obama’s lament was one of the best performances of the US stock market.

Understand the ride won’t be easy

Riding a dragon or battling tariffs don’t come easy. The fact that tariffs come at a time when domestic consumption has weakened should concern investors. the best antidote for loss of external markets is to fire up the domestic one. Needless to say, fiscal policy must roll up its sleeves to address both industry and households’ concerns. Export-oriented sectors are justified in asking for government support to help them tide over the tariffs. That said, the government would need to allow companies to clean-up, innovate and compete rather than continue to offer them subsidy crutches.

For the markets, this is a time to figure out what Indian companies are worth or what is their truth-to-price ratio. Valuations may be re-examined in the coming days and hard truths may be faced. In some instances, it is better to accept that we don’t know the full picture and wait for more clarity. Here is another nugget from Housel. Acclaimed American actor and comedian Robin Williams wrote a single sentence in his final macroeconomics paper that said “I really don’t know, sir.” That is perhaps the highest level of economic wisdom.

Investing insights from our research team

Can Trump’s tariff threat derail India’s vision of Viksit Bharat by 2047?

Weekly Tactical Pick: A defensive bet with improving visibility

Titan Company: Jewellery, non-jewellery both add to the shine

Hero MotoCorp Q1 FY26: Revenue dips, but margin in grip

Godrej Consumer Q1 FY26: Sustained growth, stable margins on the cards

Pidilite Q1 FY26 holds it all together with an all-round beat

KIMS: Mixed performance in Q1, but growth story remains resilient

What else are we reading?

Tata Motors is betting its future on the Iveco acquisition

Cenexi turnaround brings Gland Pharma close to growth revival

Start-up Street | The enduring lure of consumer-oriented start-ups in India

Old problems continue to dog India’s new energy revolution

Why struggling companies are loading up on bitcoin (republished from the FT)

UBS may find an opportunity in the Swiss tariff crisis (republished from the FT)

Can Trump’s tariff derail India’s China Plus One ambition?

Trump is a short-term irritant; overlapping Indo-US interests are a long-term reality

Can municipal bonds unlock new possibilities for India’s urban future?

'Indigenous Peoples Day’ reflects colonial guilt, not India’s reality

Tech and Startups 

US tariffs: No direct hit but Indian IT sector braces for second-order stress

Technical Picks: TITAN, CROMPTON, NEULANDLAB, SBI

Aparna Iyer
Moneycontrol Pro