US President Donald Trump imposed steepest American Tariffs in the last century. He targeted over 60 countries in an sweeping measure to address what he called unfair trade imbalances.
India is one of the countries most affected by the 26% US tariff on exports.
In announcing his decision, Trump called Indian Prime Minister Narendra modi a “great ally” and argued India had not treated the US fair in the trade.
India, you are very, very strong. “India, you are very, very strong.” Just now, the Prime Minister left. It’s true that he’s my friend, but I told him, “You are a good friend, but your treatment of us is not right.” They charged us 52%. “You have to realize, they’ve been paying us almost nothing for decades,” Trump explained, showing a graph listing the countries with their respective tariff rates.
Certain sectors of the Indian economy will not be affected by this blanket tariff.
In this case, the Indian auto exports will be subject to a 25 percent tariff on global imports of all automobiles, not 51 percent (25%+26%).
The reciprocal tariffs will not apply to industries like pharmaceuticals, semiconductors and minerals.
Analysts see room for negotiations despite negative reactions from markets to tariffs reciprocal
Investors’ concerns about the effect of tariffs to exports were reflected in the fall in Indian stock market following Trump’s announcement.
The BSE Sensex fell by 204.19 (0.27%) points at 12 pm Thursday. Meanwhile, the Nifty50 dropped 43.65 (0.19%) points to 23,288.70.
Analysts suggest, however, that India can negotiate tariff reduction through trade negotiations.
The ministry will be analysing the effects of the tariffs announced… This is not a negative for India, a senior official from the commerce ministry told PTI. He added that the discussions with the US may lead to revisions.
Emkay, a brokerage firm, estimates that India’s exports could drop by $30-33 Billion (0.8-0.9% GDP) due to new tariffs.
It did note, however, that the recent trade talks between India and US offer an opportunity to reach a bilateral deal.
Emkay wrote in a letter that India had a number of ‘quick wins’ it could provide the US for tariff concessions. These included higher imports of energy, defence, agricultural products, as well as lower tariffs.
Bernstein agreed with this statement, and predicted that India would prefer to negotiate rather than escalate trade tensions.
The firm believes that the Indian economy will recover by the second half of this year, despite the fact that the market may react negatively in the near term.
India should also be on guard against Chinese responses to trade
Analysts are watching China closely to see how it will respond.
US tariffs have also been increased on several Asian countries and European nations, such as China, Vietnam and Taiwan.
Analysts believe that India could benefit from global manufacturing and trade.
Ajay Shrivastava of Global Trade Research Initiative said that Trump’s decision on imposing higher tariffs for reciprocal trade with multiple Asian countries could give India an opportunity to improve its standing in the global supply chain.
Emkay stated that India’s cyclical decline is likely to coincide with EM Asia. India has suffered more from tariffs than Asia and is also less exposed in terms of exports.
Emkay warned that India could be adversely affected by China’s response.
India’s excess industrial capacity, and its aggressive pricing on Asian markets will make China’s response to the massive tariffs a crucial factor. India may need to be on guard as it negotiates trade agreements with other countries, such as the US, against Chinese trade responses. These could include retaliatory duties that would hit the domestic industry and cause disinflation.
Experts predict a measured Indian reaction
Although the US tariff on China and Taiwan is substantial, many market analysts believe that it’s not too high compared with other US duties.
Geojit Investments’ Chief Investment Strategist VK VK Vijayakumar said that India has still room for negotiation and a possible trade agreement could lower the tariff burden.
Vijayakumar stated that the market would likely respond negatively to the tariffs for the near future, but an agreement bilateral could reduce the pressures on the markets in the long term.
Narinder wadhwa is the Managing Director and CEO of SKI Capital Services. He noted that US policies promoting protectionist measures generally cause risk aversion in foreign portfolio investors.
The Indian stock market reacts negatively to US Trade restrictions as they tend to increase global risk-aversion. The FPIs could reduce their exposure to emerging market assets, resulting in increased volatility. Wadhwa said that risk-off attitudes could also weaken the rupee and affect imported inflation as well as companies with foreign debt.
The Indian response to the current situation will attract attention, as well as whether the US negotiates tariff concessions which mitigate the economic impact.
The post Trump’s reverse tariffs on Indian Markets will have a negative impact in the short-term, but negotiation could bring relief as we learn more may change.
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