Tariffs half of global levies on US exports but risk of stagflation looms, say analysts

US President Donald Trump

The tariffs are seemingly half of what other countries levy on the US exports but analysts believe these figures might not be final, emphasising that President Donald Trump’s previous negotiations with Canada and Mexico indicate that the announced tariffs could serve as a starting point for bargaining.

Siddharth Bhamre, head of research at Asit C Mehta, says, "He's a businessman. He will not straight away impose everything and let it remain that way." Bhamre continues to keenly watch out for any delays or adjustments down the line.

One of the most critical global consequences, he says is, "This will lead to a reduction in global trade, whatever might be the type which would be announced. So, for no one is it a good thing." Therefore, he cautions that the result could be an economic slowdown and inflation - "Stagflation".

"If everything goes as it is, there is a possibility that you may see growth tapering and inflation not falling, and that's not good news. So, we might get into a stagflation kind of environment where prices of goods are not correcting because of all these tariffs," he added.

He explained that Trump's approach appears to be an attempt to boost revenue through tariffs rather than increasing income tax within the US. However, this strategy could backfire, leading to a weaker global economy. "This will lead to an inflationary environment where the cost of goods across the globe will only increase because people will just pass it on to consumers," he remarked.

"The impact would be broad-based because ultimately, all the sectors and segments are connected to each other - none of them function in isolation. This will impact consumption, which will, in turn, impact banking, and so on...", he said.

Siddharth Khemka, head of research, Motilal Oswal, believes it is obvious the US itself would feel the pinch of its decisions first because they are not as self-reliant to deal with lapses in manufacturing resulting from tariffs. "They will not be able to replace these goods domestically so soon, at least," he said. Key trading partners like Vietnam, Thailand, and Bangladesh, would also be vulnerable to face economic challenges because of their nature of trade relations.

In case of India, he explained that the 26% tariff on Indian exports would push up prices, leading to reduced demand. "There is only a certain limit to how much US people can spend, right? Their income is not going up overnight," he pointed out, highlighting that higher prices could directly impact consumption although nothing happens overnight but will likely be a slow build.

The overall sentiment is that while inflation might hit early, the real challenge lies in how countries respond to beat the process leading to stagflation, globally — whether through negotiations or countermeasures because rhetorically, Trump's 'final' is a never a final. For good or bad reasons, negotiations still play a very important role, more so after today.

However, the analyst also noted a difference in how countries might respond to the tariffs. "Different countries are at least initially talking differently," he said. Some, like Israel, are opting to drop tariffs to maintain smoother trade relations, while others, such as the European Union and Canada, are discussing potential countermeasures.