India’s economic impact could be multi-billion dollar following US President Donald Trump’s decision to increase tariffs on Indian products to 50% as a response to New Delhi’s continued oil trading with Russia.
This latest action doubles the 25% duty previously announced, and makes it the most expensive levies against any US trading partners.
India is only exposed to the US in a limited way. About 20% of its goods are exported to the US. This represents about 2% of the GDP. However, certain sectors of the economy face greater vulnerability.
The tariff increase is most likely to affect Indian exports worth $8 billion, which includes gems and jewelry, clothing, textiles, chemicals and apparel.
Tariffs announced today are expected to go into effect within 21 days. The 25% earlier tariffs will be in place on Thursday.
Economic impact and sectoral exposure
Tanvee Jain and other UBS economists have highlighted the fact that certain industries, including gems and jewelry, clothing, textiles and chemicals, are especially vulnerable to US trade flow and may require government assistance in the months ahead.
The direct impact on India’s GDP is likely to be minimal due to its diversified international trade network. However, disruptions in specific sectors could have a negative effect on the country’s export growth.
Brian Jacobsen is the chief economist of Annex Wealth Management. He noted that there are 21 days before new tariffs take effect, which could be a “offramp” to negotiate, indicating the announcement might have “more symbolic value than substance.”
The latest tariffs only apply to goods, and are not targeted at India’s significant IT service exports to US.
Impact on major sectors and equities is limited
According to the equity research team of Societe Generale led by Rajat Agarwal, Indian stocks are likely to absorb most of the tariffs shock. The Nifty 50 has only about 9% exposure to the US.
The IT sector is the most affected, but it remains unaffected.
Currency movements have had the most immediate impact on markets.
Foreign investment has been affected by the weakening of the Indian rupee and increased volatility.
These tariffs do not apply to semiconductors or other electronic products, which are among India’s biggest exports.
Apple’s large manufacturing plants in India are also not expected to be affected by the new tariffs, as its products categories will remain exempt.
Steel and aluminum exports have already been taxed by a separate executive directive, so the new hikes won’t affect their terms of trade.
Backgrounds for geopolitical issues and international trade
Trump’s tariff increase comes amid tensions in diplomatic relations, as Washington seeks to reduce global purchases of Russian oil.
The decision, analysts note, may have a limited macroeconomic impact on India’s economy. However it highlights the increasing risk that geopolitical tensions will spill over to trade policy.
Diplomatic engagement may be crucial in the coming weeks, given the 21-day window before additional tariffs are implemented.
The 50% trade levy, however, will be among the most severe measures the US has ever imposed, testing the economic strength and the political relationship between the US and Canada.
The post Trump’s tariff on India will be updated as new information becomes available.
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