Markets hoping Trump tariffs 'temporary', political aim being met by economic damage, says Neelkanth Mishra

Already, Canada and Mexico have vowed to impose tariffs on US, after President Trump's imposition of 25% tariffs on imports of the two neighbouring nations, which may squeeze the supply chains in the North American region.

Neelkanth Mishra of Axis Bank said the global market reaction to US President Donald Trump's latest round of additional tariffs on Canada and Mexico along with 10% tariff on China has not been 'substantial', as there is a widespread belief that the tariffs are likely to be temporary. However, the actions by US are creating significant uncertainty for economic forecasting.

"This (Trump's tariff) has triggered something substantial, as political objectives are being met through economic damage," said Neelkanth Mishra, Chief Economist, Axis Bank, in conversation with CNBC-TV18 on February 3. Mishra added that the impact on US could worsen if there is a retaliatory action by America's neighbouring countries.

Already, Canada and Mexico have vowed to impose tariffs on US, after President Trump's imposition of 25% tariffs on imports of the two neighbouring nations, which may squeeze the supply chains in the North American region. The US automobile and energy sectors are likely to be hit the most, along with some impact on consumption. American imports nearly half of its auto components from supplies based out of Canada and Mexico, as per UN comtrade data from 2023.

US stocks fell on Friday, with car manufacturers and companies with exposure to China leading the selloff. Back home, the trade tariffs are weighing on the stock market, triggering a sharp selloff as investors adjust to the implications, with the Indian Rupee weakening to record low, slipping beyond 87 per dollar.

Read More: What Trump Tariffs means for the Indian economy and markets

"Aside of the initial impact, everyone expects this to be temporary, but this adds to uncertainty," added Neelkanth Mishra.

Goldman Sachs in a recent note also said that it does not see the tariff measures imposed by America to last long, calling them likely 'short-lived'.

".. we think it is more likely that the tariffs will be temporary but the outlook is unclear," said Goldman Sachs, adding that White House has set general conditions for their removal.

Independent researcher and analyst Vivek Kelker writes for Moneycontrol that President Trump's tariff actions could have exactly the opposite effect, and may push China further away in 'US-threatened geopolitical spaces'.

Washington D.C. based Tax Foundation cited a review of the economic studies on the 2018-2019 trade war tariffs conducted by the Office of the United States Trade Representative, which said that US tariffs had a 'small negative effect on US economic welfare and incomes, increased prices of imported goods into the United States'. This, the report said, was due to a 'nearly complete' pass-through of tariffs on American importers.

Bloomberg News quoted Karl Schamotta, chief market strategist at Corpay, saying, “Financial markets may undergo a painful adjustment process in the coming weeks, as participants begin to take the President seriously and literally.”

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