Trump Tariff Impact: Brokerages Warn Of Export Risks, Growth Hit, And Strategic Fallout
Brokerages note a likelihood of short-term downside risk to GDP and long-term questions about trade independence, especially around Russian energy ties
The US President Donald Trump imposed an additional 25% tariff on Indian goods, citing India's purchase of Russian crude oil. This has raised the total tariff burden on the nation up to 50%, placing the country just next to Brazil in terms of the highest US tariff rate without a bilateral agreement.
Top brokerages, including Jefferies, Citi, BoFA, and Nomura, have flagged risks ranging from a sharp dent in exports, weaker growth, stress on India's current account, and strategic complications. These brokerages echo the common thread of the economic and geopolitical pressure this move imposes on India. There's a likelihood of short-term downside risk to GDP and long-term questions about trade independence, especially around Russian energy ties.
The new tariff will come into effect on Aug. 27, leaving a short 21-day window for possible negotiations.
Jefferies On Trump Tariff
Jefferies placed the tariff action within a broader political context, highlighting that "India's deep defence and energy linkages with Russia" and refusal to open up its agricultural and dairy sectors have created friction points.
"We believe the political fallout of US asks on dairy and agriculture still remains a key stumbling block to a deal," Jefferies noted. While they said that the direct financial cost of replacing Russian is minor at less than 15 basis points of GDP, they stressed the strategic nature of these ties and said, "A clean break from Russian trade on all items will be tough for India."
However, the brokerage notes that "we remain hopeful of an eventual trade deal with the US."
Citi On Trump Tariff
Citi stressed upon the economic vulnerability the tariffs pose, estimating a 0.6-0.8 percentage point downside to India's annual GDP growth.
The brokerage noted that the tariffs "would take weighted average US tariffs to 42.4% from 13.2% during the pause period and 2.7% pre-2025".
Citi said the actual impact could be higher, as most exports could become 'unviable' at this tariff rate, the brokerage added.
However, the brokerage also said RBI might smoothen any sharp depreciation bias through FX intervention. But uncertainty around the final outcome in the near term could be an overhang on sentiment.
BoFA On Trump Tariff
BoFA noted that while a 25% reciprocal tariff was not a major surprise given the signs of a stalemate in the trade negotiations, the imposition of potential penalties due to crude oil imports from Russia and subsequent refined petroleum exports adds a larger negative dimension to it.
"Russia constituted 10.4% of the global crude oil supply in CY24, with India purchasing 13-18% of the total Russian supply," it noted.
The brokerage noted that overall, a reduction or discontinuation in crude procurement from Russia could be negative for OMCs (lower GRMs, potentially lower marketing margins if crude prices were to spike) and positive for upstream E&P players (higher oil & gas realisations if crude prices were to rally).
It also, however, noted that, "given smaller discounts in recent months, the macro impact is likely to be contained."
It further added, "We see a potential adverse impact on GRMs for OMCs and refiners in the country should India cease to import discounted crude from Russia."
Nomura On Trump Tariff
Nomura took a more cautious approach, noting that the US is India's largest export destination, accounting for around "18% of total exports and 2.2% of GDP in FY25".
Key exports include pharmaceuticals, smartphones, gems & jewellery, industrial machinery, auto components, textiles or apparel and iron & steel. Notably, for a number of sectors, the exports to the US account for around "30-40% of India's global exports of that product category."
The brokerage noted if effective, "the steep 50% tariff would be similar to a trade embargo and will lead to a sudden stop in affected export products."
It further added that the lower value addition and thinner margins across a number of industries (textiles, gems & jewellery) could jeopardise operations, especially of smaller firms that will struggle to compete.
Nomura also said that the effective tariff rate also makes the burden on India similar to that of China and much higher than ASEAN economies (19-20%), putting India's goods at a significant disadvantage.
