US President Donald Trump announced higher-than-expected reciprocal tariffs on several nations in a move that could reshape the global economy. "If these tariff rates stay as they are, we should see a period of ‘stagflation’ – there will be a one time cost increase (inflation) – for everyone especially in the US, which should lead to a slowdown in activity and a very high likelihood of US recession," said Arvind Chari, CIO, Q India UK, an affiliate of Quantum Advisors in an interview to Moneycontrol.
Further, after these new tariff rates, he believes ideally, global trade should fall. "Many MNC’s which benefitted out of globalisation, will re-think their manufacturing and sourcing strategies," he said.
However, according to him, India is relatively better off. Also, "the fact that services has been left out of this, is a good outcome for India. India now exports more services than goods," said Arvind with more than 20 years of experience in investment management in macro, credit, and fixed income portfolio management.
Do you think the 26% discounted reciprocal tariff imposed on India by Donald Trump is a major concern for equity markets?
If seen on a standalone basis, it seems concerning. US is a large destination for India exports and a tariff rate of this magnitude will have impact. However, the way these tariffs have been calculated, (it is neither based on tariff rates nor based on reciprocal), other competing countries like China, Vietnam, Bangladesh, Indonesia have been slapped with even higher tariff rates. So, India is relatively better off. Also, the fact that services has been left out of this, is a good outcome for India. India now exports more services than goods.
However, I do not expect these rates to hold. Depending on how other countries respond, these rates will get adjusted. Countries like Vietnam have already announced that they will bring import duties on US goods to Zero. India also should follow or will be forced to follow – which will on a reciprocal basis mean it could allow higher export opportunities into the US.
After higher-than-expected tariff rates, do you see an increasing possibility of a slowdown or recession in the US?
If these tariff rates stay as they are, we should see a period of ‘stagflation’ – there will be a one-time cost increase (inflation) – for everyone especially in the US, which should lead to a slowdown in activity and a very high likelihood of US recession.
If most countries try to de-value their currencies to nullify the impact of tariff increases, that may in turn have a deflationary impact. China did this in response to the 2018 tariff increase. India and other EM countries also needed to saw a depreciation of their currencies.
So a lot of the outcomes are dependent on whether these tariff rates hold and how countries respond.
Over the last 70 years, global trade increased, which led to global peace and prosperity. The US and other developed nations did lose out on jobs and manufacturing but they saw an increase in incomes, low to stable inflation and prosperity. That is now being disrupted and it will lead to chaos, until the world learns to deal with the situation.
How do you view this major tariff announcement with respect to global trade, as several multinational companies will be impacted?
Ideally, global trade should fall. Many MNC’s which benefitted out of globalisation, will re-think their manufacturing and sourcing strategies. Even if you manufacture in US, the fact that a company will need to import some goods (and bear the cost of the tariff), it isn’t clear whether they will be able to move to US and manage to keep costs low.
This will though definitely increase trade between other nations.
India should cease this initiative. They should push for a bilateral deal with the US and may be live with some imports of Harleys, Tesla’s, Caterpillar equipment instead of it being produced here in India.
India should also push for more open trade with EU and other Asian economies.
Will gold be the star performer in 2025 due to global growth concerns?
Gold is a ‘hedge’ against Stupidity of Government, politicians and Central Banks. It is correctly responding to the ‘stupidity’ on display from global politicians.
Which also means that some of it may already be represented in the current price. However, you can never discount the potential and continued stupidity of policy makers. Which is why we at Quantum have always advocated a 10-20% allocation to Gold in your investment portfolio.
Is this a great opportunity for buying? Which sectors would you consider adding to your portfolio?
In our flagship, Value equity strategy, we are sector and index agnostic. We evaluate companies over a 2/2.5-year forward basis and look for discount to what we believe is intrinsic value.
As the markets corrected over the last six months, valuations have become saner, especially in large cap space, and we have found opportunities to deploy some cash.
However, earnings slowdown, due to domestic reasons driven and now this global volatility on tariffs, will need further evaluation of which companies and sectors get impacted.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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