The trade self-isolation that the US is headed for under President Donald Trump now makes the case for regional trade agreements between countries, according to Macquarie Capital's Sandeep Bhatia.
"The isolation of the US from the global system will not come easy. We need to have regional trade agreements," Bhatia, the managing director and head of equity-India at the diversified financial firm, told NDTV Profit.
He pointed out that India is relatively less exposed to global trade flows than Asian export powerhouses like China, South Korea and Japan. Therefore, the impact of Trump's tariffs will not be as severe as for the others.
The US will levy a 27% import duty on Indian goods starting April 9. Merchandise exports to the US represent just 2.1% of India's GDP and 18% of outbound shipments.
Bhatia also said the international order in which the US was the 'consumer of last resort' that could bail out the world during crisis is now tossed.
"It will create significant social and political imbalances around the world. Financial markets that look at the US to stabilise whenever there is trouble cannot do so anymore in terms of consumption, demand, and supporting institutions to help financially troubled regions. Each country is now on its own," he said.
Trump's tariff action will add inflationary pressure domestically and move the Federal Reserve to re-evaluate its interest rate easing cycle. The poor fiscal situation of the US government also fuels Bhatia's pessimism for the world's largest economy.
Another knock-off effect of trade policies will be corporate earnings growth.
"The fourth-quarter earnings are factored into the market already. There will be an impact on corporate earnings and margins due to tariffs. It is difficult to factor in immediately," Bhatia said.
He expects India to remain an investor-favourite in the near term and have a bilateral trade deal with the US by Diwali.
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