Global Tariff War: Where To Take Refuge | Open Interest

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Nearly $8 trillion—equivalent to twice the size of India’s gross domestic product—has been wiped out in asset value over just three days. This puts in perspective the ferocity of the shock US President Donald Trump has delivered to the world in an attempt to correct America's balance sheet.

This marks the fourth biggest economic shock after the Great Depression of 1930s, the 2008 Global Financial Crisis, and Covid-19 in 2020.

The pain is far from over, as more countries retaliate against Trump’s reciprocal tariffs. China, for instance, has imposed a 34% tariff on all US imports, alongside restrictions on the sale of strategic minerals and rare earth materials. The reality is that while the US and China engage in this trade war, global markets are caught in the crossfire, leaving emerging markets in disarray.

Before we begin, you can sign in to our daily and weekly newsletters here.

Nearly $8 trillion—equivalent to twice the size of India’s gross domestic product—has been wiped out in asset value over just three days. This puts in perspective the ferocity of the shock US President Donald Trump has delivered to the world in an attempt to correct America's balance sheet.

This marks the fourth biggest economic shock after the Great Depression of 1930s, the 2008 Global Financial Crisis, and Covid-19 in 2020.

The pain is far from over, as more countries retaliate against Trump’s reciprocal tariffs. China, for instance, has imposed a 34% tariff on all US imports, alongside restrictions on the sale of strategic minerals and rare earth materials. The reality is that while the US and China engage in this trade war, global markets are caught in the crossfire, leaving emerging markets in disarray.

In fiscal year 2025, India’s total external trade amounted to $800 billion, with the US accounting for nearly 15% of it. The reciprocal tariffs are projected to reduce India’s GDP growth by 50 basis points in the current financial year, down from an earlier estimate of 6.5%. As the Reserve Bank of India’s Monetary Policy Committee meets between April 7 and April 9, it must address the potential growth impact and implement corrective monetary measures urgently.

Indian markets have already lost over $130 billion in market value since the end of March, and the pain is likely to continue amidst the ongoing Asian market meltdown.

A reset is underway. The focus is shifting to companies with high domestic exposure and lower external risks. This tariff war will be prolonged, and any reversal of reciprocal tariffs will depend on how India and other nations negotiate with the US. The biggest economy in the world is prioritising its trade deficit reduction and will likely demand larger access to domestic markets before scaling back tariffs.

Companies that are heavily focused on their domestic markets are better insulated from external shocks and will begin to command a higher premium compared to those reliant on exports.

For the Indian economy, certain factors are working in the right direction—revival of domestic demand, declining crude oil prices, moderating inflation, lower interest rates.

These elements will help India absorb the global shock.

India’s supply chains are better positioned than they were during the Global Financial Crisis or Covid-19. Although there will be challenges, particularly related to declining exports, they appear manageable in the medium term. In calendar year 2024, India’s trade deficit with the US was $45.6 billion, of which $20.4 billion was due to exempted items like pharmaceuticals. Bridging the remaining $25 billion gap seems feasible through crude imports and defense deals with the US. Comparatively, India’s challenges are less severe than those faced by Taiwan (deficit of $74 billion) or Vietnam ($123 billion deficit).

Investors should focus on sectors such as domestic consumption, pharma companies with limited export exposure, consumer discretionary goods, infrastructure, and defense. The theme of capital goods and capex is likely to make a comeback, driven by investments from both the public and private sectors.

Recent data from think tank Centre for Monitoring Indian Economy highlights a rise in new project announcements worth Rs 18.7 lakh crore in the recently concluded March quarter—a 23% year-on-year increase. For the entire fiscal 2025 overall, new project announcements totaled Rs 38 lakh crore, marking a 2% growth. Key segments driving this growth include the power (Rs 13.6 lakh crore in renewables and conventional energy), steel (Rs 5.2 lakh crore), and electronics (Rs 2 lakh crore, including display fabrication).

The manufacturing sector’s share of capex announcements increased to 41% in FY25, with private sector contributions driving growth. Meanwhile, the government’s share of capex rose from 21% to 30%, thanks to a 42% surge in new investments.

Falling crude prices may compel oil marketing companies to reduce fuel prices if crude remains below $65 per barrel. If domestic fuel prices do not drop, oil marketing companies will still benefit—a win-win scenario for them.

Lastly, domestic investors are now equipped with extra cash following recent tax relief measures in FY26. A significant portion of this is expected to flow back into the market through mutual fund investments.

So don't burn your fingers as no one can call the bottom. Stay safe, stay prudent while investing.