Trump tariffs: Can India navigate the global tariff war? Impact to key partners—Here’s a 5-point analysis

Trump tariffs: The US announced the suspension of additional tariffs on India for 90 days until July 9 last week, days after US President Donald Trump slapped universal duties or reciprocal tariffs on 60 countries exporting goods to America and additional steep levies on countries like India on April 2.

Donald Trump has unleashed tariff hikes across nations after taking charge as the 47th US President in the White House in January. The tariffs have escalated a global trade war, with several countries retaliating with their own tariffs on trade with the world's largest economy. The trade disruption and economic uncertainty have sent global financial markets into a tailspin.

“An unexpected pause on reciprocal tariffs by the US provided relief in the midst of the uncertainty. Any development in the bilateral trade negotiations can alter the near-term outlook on the export-driven sectors," said Vinod Nair, Head of Research at Geojit Investments Limited.

What are tariffs?

Tariffs are a key tool in global trade battles. Countries impose tariffs on imports to protect their local industries, but these measures can have ripple effects on economies worldwide. Simply put, a tariff is a tax imposed by a country on imported goods. Hence, higher tariffs make foreign products more expensive, potentially reducing their demand.

For example, if the US imposes a 25 per cent tariff on Indian steel, Indian exporters may lose price competitiveness in the US market. Due to this, Donald Trump believes that the latest tariff hikes will increase domestic production of goods in the US, however, economists believe otherwise.

Can India navigate the global tariff war? Here's a five-point analysis:

1.India's key trading partners

The Indian economy thrives on trade. Here's a look at the top trading partners (FY 2023-24):

Top import sources:
-China (15 per cent)
-US(eight per cent)
-UAE (seven per cent)

Top Export Destinations:
-US (17 per cent)
-UAE (six per cent)
-China (five per cent)

2.India vs US: A trade snapshot

India-US trade in recent years has seen both growth and challenges:

• Total Trade (FY23): $128 billion

• Exports to the US: $78 billion

• Imports from the US: $50 billion

Tariff Battles: In 2019, the US removed India from its GSP (Generalized System of Preferences), affecting $5.6 billion in exports.
 

India's tariff policies vs US-

Machinery: 6.6 per cent vs. 1.3 per cent

Agriculture: 37.7 per cent vs. 5.3 per cent

Iron & Steel: 4.5 per cent vs. two per cent

Auto Sector: 24.1 per cent vs. one per cent

Plastics & Articles: 9.9 per cent vs. 4.4 per cent.

3.Impact of tariff hikes on Indian economy:

Impact on sectors-

IT and software: Costlier outsourcing due to visa and tax barriers.
Pharma: Export challenges in the US market.
Textiles: Reduced demand and job impact.
Auto: Higher production costs due to steel and aluminium tariffs.
Agriculture: Farmers hit by lower exports.

Impact on Indian companies-

Tata Steel, JSW Steel: Higher tariffs on exports.
Sun Pharma, Dr Reddy's: Rising competition in generics.
Raymond, Arvind Ltd: Textiles facing price pressure.
Maruti Suzuki India, Tata Motors: Input cost surge affecting auto prices.
ITC, Britannia Industries: Food and agri exports impacted.

4.How is India fighting back against tariff hikes?

Diversifying Exports: Expanding into Europe, Africa, and ASEAN.
Trade Agreements: Partnering with UAE, UK, and other nations.
Boosting Domestic Manufacturing: Production-linked incentive (PLI) schemes for electronics, textiles and automobiles.
Negotiations: India and the US are working on tariff-related negotiations and finalising the bilateral trade agreement (BTA).

5.What does it mean for investors?

• Short-Term Risks: Uncertainty over global trade policies.
• Long-Term Gains: Shift towards self-reliance (Atmanirbhar Bharat).
• Investment Opportunities: According to domestic brokerage Mehta Equities, sectors like electric vehicles (EVs), defence and local manufacturing will benefit.

“The Trump government's decision not to impose import tariffs on any nations for 90 days provided a sigh of relief to investors that fuelled short covering. Intra-day volatility with a negative bias is expected to come back as China hit back with 125 per cent tariffs on US imports, which could trigger a sell-off going ahead,” said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.

Additionally, according to Vinod Nair, Head of Research at Geojit Investments Limited, “The supportive domestic environment with ease in interest rates and a benign inflation trajectory encourages investors to have a balanced portfolio to aid in a better risk-reward in the long term.”

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.