Moneycontrol Pro Panorama | Tariff Tension

India has begun taking proactive measures in response to this looming tariff threat.

Dear Reader,

April 2 marks a pivotal date for global markets, as it is the day when US President Donald Trump will implement reciprocal tariffs. While India may not be at the forefront of this trade conflict, it will certainly feel the repercussions.

In a recent interview with Breitbart News, Trump described India as a "wonderful nation" but criticised its high tariffs on US goods, stating, "I have a very good relationship with India, but the only problem I have is they're one of the highest tariffing nations in the world." He indicated that while he anticipates India will reduce these tariffs significantly, starting April 2, the US will impose tariffs equivalent to those levied by India on American products.

India has begun taking proactive measures in response to this looming tariff threat. The country has already lowered tariffs on motorcycles and alcoholic beverages, slashing duties on fully assembled motorcycles by 10-20 percent and reducing customs duty on bourbon whiskey from 150 percent to 100 percent. Additionally, India is committed to increasing defence purchases from the US and exploring oil imports to mitigate potential economic fallout.

However, experts express concerns that these measures may not suffice. Goldman Sachs projects that Trump's tariffs could inflict a hit of 10-60 basis points on India's economy. The firm notes that India's gross exports to the US constitute only about 2 percent of its GDP, making it one of the lowest among emerging market peers. Nevertheless, India's indirect exposure to US demand through exports to other countries may double its vulnerability, potentially impacting domestic GDP growth by 0.1-0.6 percentage points.

Conversely, S&P Global Ratings suggests India's robust economy and limited exposure to US markets could shield it from severe consequences. The report indicates that while direct impacts may be minimal—given that India's export sector accounts for just over 10 percent of its GDP—indirect effects such as trade redirection could adversely affect sectors like steel and chemicals.

Fitch Ratings warns that aggressive US trade policies could pose significant risks to India's growth trajectory while Moody's highlights potential impacts on automotive, steel, chemicals, and business services sectors across South and Southeast Asia due to these tariffs.

The interconnected nature of global trade means that India's challenges may arise from direct tariffs and actions taken against countries like China, which could redirect their goods into Indian markets.

Market reactions in India have been mixed in anticipation of these tariffs. Sectors least affected by the tariff war have seen gains. However, the IT sector has remained stagnant despite broader market uptrends.

Trump's tentative tariff imposition and the responses from other nations suggest that retaliatory measures may not be as severe as initially feared. Nonetheless, even targeted tariffs can reverberate throughout global markets as affected countries seek alternative outlets for their goods. In essence, Trump's actions are set to impact global trade dynamics irrespective of their specific targets.

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