Global Trade To Reset With Trump Tariffs But Here's The Advantage For India
While the US faces inflationary as well as recessionary risks, India might be able to negotiate its way through the Trump tariffs. Analysts have explained how it may play out.
US President Donald Trump's tariff policies unveiled on Thursday are set to reset global trade, pose inflationary as well as recessionary risks to the world's largest economy, and damage consumer and business confidence.
A minimum 10% tariff on import of all goods into the US will kick in on April 5, and additional levies on major trading partners from April 9 will take the effective US tariff rate to near 25%.
Though such duties could lead to an increase of roughly $660 billion or 2.2% of GDP in US tax revenue, the flipside is a substantial jump in inflation, adding close to 2% to the consumer price index this year, according to JPMorgan.
"Full implementation of tariffs to lead to substantial macro-economic shock. If tariff hikes are sustained, it will likely push the US and global economy into recession this year," the investment bank said in a note.
According to Citi analysts, country-specific tariff rates are higher than expected, raising questions about what gets rolled back and how soon. If trade negotiations are unsuccessful, damage to consumer and business confidence is likely. The level of tariffs announced could reset the global trade order.
Bernstein said Trump's declaration is likely a starting point for several months of back-channel negotiations with countries. Their analysis indicates that the tariffs are sweeping and significantly high, impacting a broad range of goods.
India's Advantage
India is one of the least-tariffed Asian exporters, positioning itself as a 'China+1' hub for US-bound production. With the lowest tariffs among major Asian exporters, India gains a relative edge, according to Prabhudas Lilladher.
Although it has no tariff advantage over Mexico, Central America, and African beneficiaries, within Asia, India holds the most favourable tariff position, a clear strategic upgrade.
That's a view shared by Bernstein analysts as well, who also say New Delhi will engage with Washington for a bilateral deal and safely navigate through tariff challenges.
However, Nomura said many of the Asian manufacturing companies have also relocated production to other parts of the world like ASEAN, India, and Mexico over the years. But given broad-based tariffs, that strategy will unlikely prove to be a complete mitigation strategy.
"An end-demand slowdown in the US due to potentially higher prices will also have an impact on the top-line of Asian exporters. Thus, the impact of slower top line and margins will have an impact on Asian earnings too," a note said.
Morgan Stanley said that with merchandise exports to the US being at 2.1% of India's GDP, the direct impact from Trump tariffs will likely be less severe. However, a slowdown in US growth and weak global trade momentum will impact external demand.
