Market veteran Nilesh Shah said the mass tariffs announced by US President Donald Trump on April 2 will impact the American economy the most, reigniting fears of lower growth and higher consumer inflation, while taking a dig at the methodology deployed to arrive at tariffs that have been levied.
"President Trump is proving what Sant Tulsidas wrote centuries ago, 'Samrath ko nahi dosh gosain'. WTO is meant for weak nations. Strong nations can do what they want. They can even calculate tariffs as a deficit with the USA divided by exports to the USA and get away with it," said the Managing Director of Kotak Mahindra AMC.
During the White House briefing, Trump announced that Indian imports would be charged 27 percent tariff, relatively lower than other Asian peers such as Vietnam, China or Thailand.
Nilesh Shah recalled how the US economy has in the past been negatively impacted after the imposition of trade tariffs. "The US has imposed mass tariffs like this twice in history: in 1828 and 1930, with a gap of approximately 100 years. Both those resulted in the recession/Great Depression," he said.
The veteran investor fears the reciprocal tariffs may hurt American consumers too. "If US markets are correcting, US consumption, which accounts for two-thirds of the economy, could come under pressure due to higher inflation, and the evaporating wealth effect," Shah said, adding that the tariffs may cause stagflation in emerging markets but risk a ‘hard landing’ for the American economy.
The world may respond to US tariffs through currency weakening, heightened negotiations, or counter-tariff, said Shah. “India has been hit lower than most of its peers. It is up to us how we manage the situation. We can bring footwear and garments business from Asian peers if we get our act together,” he added.
Nilesh Shah warned against the increased risk of dumping of goods by China after US reciprocal tariffs, adding that India should strongly negotiate with its Asian neighbor to ‘create a win-win situation rather than the usual lose-lose situation’.
"Most importantly we need to remember that 'Picture abhi baki hai," Shah said, eluding to possible negotiations before the tariffs take effect, and any potential counter-measures by major economic powers such as China and the EU.
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