Trump's penalty inflationary for India but won’t derail the growth story, says EM expert Seth Freeman

As the US sharpens its trade stance, India has found itself in the crosshairs with a 25 percent tariff and penalty over continued purchase of Russian oil and weapons.

US President Trump’s penalty on India over its Russian trade is likely an attempt to squeeze Putin’s ability to fund the Ukraine war through sale of oil, market expert Seth Freeman told Moneycontrol. The move could be inflationary for India, he added, but won't derail the long-term story as the domestic growth remains strong. He is advising investors to follow a 'slow and steady' approach in this market and not try to time the entry.

Edited excerpts:

US has imposed 25% tariffs and penalties on India. How much of this do you think is posturing by President Trump, as has often been the case, and what could be the actual outcome?

Well, he has certainly been posturing from the very beginning, whether it’s about tariffs, timing, or amounts. But I think the situation with India is quite serious. I’ve said this before in Indian media — it’s been extremely problematic that Indian oil importers have been buying large amounts of cheap Russian oil. This has been going on for a while, and diplomatically and politically, it’s a big issue. There’s also the trade deficit to consider. The US imports about twice as much from India, close to $80 billion, compared to what India imports from the US.

Trump has also mentioned penalties on India for buying Russian crude and weapons. What kind of measures could we realistically see, given that nothing is fixed yet?

It’s hard to say for sure. It wouldn’t be a traditional tariff if he’s calling it a 'penalty'. It might look more like a sanction or some other form of trade barrier. Trump seems to be focusing on pressuring Russia into a peace plan with Ukraine, and Russia’s ability to fund that war comes significantly from oil sales.

Considering India imports 80% of its crude needs and 35% of that comes from Russia, if these penalties reduce Russian supply, how could that impact India's inflation and economic outlook?

It would certainly be inflationary. If cheaper oil from Russia is reduced, India will face higher import costs. Oil touches nearly every industry — from transport to manufacturing — so rising input costs could ripple across the entire economy.

How does India compare to other emerging markets in this tariff equation? China is facing 30% tariffs, Vietnam and South Korea around 15%.

It’s tough. Emerging markets are predominantly exporters, and the US remains the biggest importer, especially of consumer goods, industrial components, and chemicals. So, while tariffs are aimed at foreign exporters, they often hit US businesses and consumers too. Many of the goods coming from these countries aren’t easily replaceable in the short term, so US importers will feel the pinch as well.

What does all this mean for India’s growth story? Especially now, with one of the highest tariff burdens globally?

I don’t think it will derail the long-term growth story. Yes, $80–84 billion is a significant number, but India’s domestic growth engine remains strong. If you look at the Indian markets over the past 10–15 years, they have matured a lot. Earlier, large outflows by foreign investors would shake the market. Now, with rising domestic investment, it’s become far more resilient. And Trump won’t be president forever — whether he likes it or not. So, I wouldn’t be overly worried about the long-term picture.

What would you advise investors at this point? Are Indian markets showing resilience? Is ‘buy on dips’ still a good strategy over the next few months?

It depends on whether you’re a trader or an investor. I’ve become more of a believer in the 'slow and steady' approach. Trying to time the market is difficult unless you’ve got the tools or the stomach for it. That said, if specific sectors or companies take a hit amid this noise, it might create good buying opportunities. Just don’t fall into the trap of buying high and selling low, which many so-called investors tend to do. Consistency is key.

FIIs have been net sellers this month. Do you think these tariff concerns could accelerate outflows in the coming quarters?

I don’t think so — especially now that we know interest rates are likely to remain stable through at least September. Also, keep in mind it’s summertime — a lot of global traders, especially in New York, are on holiday. Volumes are lighter. We’ll get a clearer sense of sentiment after the US Labor Day holiday in early September.

You mentioned the Fed holding rates steady through September. What’s your outlook for the rest of the year and into 2025?

Before today’s announcements, there was a 60% probability of a rate cut in September. But after the press conference and updated guidance, the consensus now looks closer to 50%. So right now, it could really go either way — but the bias toward a rate cut has softened slightly.

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