Moneycontrol Pro Weekender | Orange Bear

Dear Reader,

What kind of event was Tariff Day on April 2 and its aftermath? We’ve heard of Black Swans, used to describe the Global Financial Crisis, Grey Rhinos like the Chinese real estate bubble, and pink flamingos such as the US debt ceiling brinkmanship. Tariff Day resembled none of those things. Perhaps, we could call it an Orange Bear event—think of a bear with an orange wig or painted orange, roaring in public, breaking stuff and rampaging through economies and markets.

This week was all about the so-called reciprocal tariffs. Discussions ranged from the flawed basis of the tariff calculations to its brutal impact on some very poor economies to memes about how even uninhabited islands were slapped with tariffs. What does such a shoddy piece of work tell us about the Trump administration? The most rational explanation seems to be that the tariffs are just made-up figures, designed to force other countries to the negotiating table. But what on earth could the US gain by forcing Lesotho to negotiate, or Madagascar? What’s more, the tariff calculations have been based on individual country deficits, rather than tariffs per se, which means the real aim seems to be to bring down the bilateral deficit between a country and the US. Even then, the 10 percent baseline tariffs will continue, as they apply even to economies with which the US has a trade surplus.

Also, these tariffs are only on goods and don’t apply to services, simply because the US has a surplus in the services trade. And finally, if indeed the aim is to reduce tariffs in other countries, then how does it square with the claims of massive revenue gains through tariffs, which apparently will pave the way for a tax cut in the US? Simply put, it’s a seething mass of contradictions. We pointed out here the resemblances to the Smoot-Hawley tariffs of the 1930s and wondered whether a similar catastrophe is in the making.

No wonder, investors opted to sell first and ask questions later. This was spectacularly evident in the US markets, which crashed on Thursday. Investors are worried about inflation in the US being pushed up by tariffs, which in turn will hurt purchasing power and consumption demand. Stagflation odds have gone up. Inflation expectations have risen, and real yields fell. As a result, the dollar plunged. All eyes are now on when US Fed chair Jerome Powell performs his rescue act.

Most of our analysis, understandably, was concentrated on the repercussions of the tariffs on India. We looked at how Indian markets will navigate the storm and decoded their impact. We considered in detail the effect on sectors such as gems and jewellery, on textiles here and here, on aquaculture, and on the auto sector.

This FT story, free to read for Moneycontrol Pro subscribers, says that the sweeping tariffs threaten ‘Factory Asia’, the export powerhouses of East and Southeast Asia. But since the tariffs imposed on India are lower than on China and Vietnam, there’s a case that it could benefit us in the long run. Gaurav Kapur, chief economist at IndusInd Bank, wrote here that India is eyeing long-term gains despite the short-term trade shock. We wrote whether India has a tariff advantage over its peers and whether India’s companies benefit from being less hurt by reciprocal tariffs. Shyam Sekhar pointed out that much depends on how quickly we can wrap up the negotiations over the tariffs. And we pinpointed here which large economy is largely insulated from the tariff storm.

The Monetary Policy Committee will meet next week and, with oil prices down, lower global growth leading to lower commodity prices, and with the tariff impact and the continuing uncertainty exacting a toll on domestic growth too, inflation is likely to remain low. With retail inflation forecast at 4.2 percent for FY26 and the policy rate at 6.25 percent, the real policy rate is too high and needs to be cut to support growth in these difficult times.

The effect of Trump’s hare-brained policies is not merely on trade and the economy -- It has led to an enormous loss of confidence in the US leadership by the rest of the world. To be sure, countries will still queue up, cap in hand, to seek concessions from the tariff hikes, but as this FT story tells us, “Irrespective of whether Trump’s trade war chaos is fleeting or gets worse, the diplomatic cost will be enduring. Countries will look to do the serious deals with each other and bypass America”. We had written here about how America plans to rewire the global economy and who will pay the price. This FT story tells us that “While it is easy to focus on the immediate risk to global trade from US tariffs, the bigger investment risk may be from the resulting decline in global portable capital”. Weaponised trade could lead to weaponised capital.

And finally, Trump’s reciprocal tariffs were the last nail on the coffin of the Rules-Based International Order, and we penned its obituary here.

This might be the time to remember another lament, Don McLean’s ‘American Pie’, a song drenched in nostalgia for a very different America. Perhaps Tariff Day was the day the music died.

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks

Weekly tactical pick, BEL, Should investors bet on a potential stake sale in this mutual fund? EIH, HAL, Can this company make the most of the overheated summer surge?, Will the steady rise in demand for domestic natural gas propel this stock? Loan growth, asset quality key to the stock re-rating of this housing finance company, V2 Retail, FMCG preview

Markets

Can a rate cut boost stock markets?

Should retail quota in large IPOs be curtailed?

Financial Times

China senses an opportunity in Trump’s cultural revolution

Will wealthy consumers pull back?

Companies and sectors

Reshoring pharma? Why the US can’t afford to disrupt generic drug supply

Welcome tariff restraint on pharma so far, long-term measures key

How ITC’s acquisition of a commodity business affects its valuation

What should investors expect from bank results in Q4?

Uday Kotak’s stark warning and what it means for banks

The Goldilocks moment for hospital companies

Who is losing in the great battle for bank deposits?

Economy & Policy

The $50 billion market India is finally targeting

As job creation improves, will consumption follow suit?

India facing huge surge in power demand

Smart City Mission

Pro Economic Tracker

Geopolitics & geoeconomics

Will Trump’s no-holds-barred tariff game strengthen or weaken the US?

The Mar-a-Lago Accord: an imminent proposal to restructure the global financial order

Trump’s tariffs risk making China a bigger headache for Asia

Tech & Startups

AI won’t derail India’s GCC growth but will redefine it, say experts

Lab-grown diamond startups carve a niche in India’s jewellery market

China’s Tech Revolution: The force behind 2025’s market boom

Personal Finance Getting the valuation game right is key to equity investing