Most emerging nations, including India, possess the capacity to adjust their trade strategies to withstand the impact of U.S. tariffs, according to a recent study by risk consultancy Verisk Maplecroft. The report suggests that these nations can navigate trade volatility and shifting geopolitical alliances without experiencing excessive economic strain.
Key Findings of the Report
The Verisk Maplecroft study analyzed the resilience of 20 major emerging markets, assessing factors such as debt levels and reliance on export revenue to determine their ability to manage trade fluctuations. Reema Bhattacharya, head of Asia research and co-author of the report, stated that most global manufacturing hubs are in a better position than commonly perceived to weather the tariff storm emanating from the U.S..
While Mexico and Vietnam are particularly susceptible to U.S. trade dependence, their progressive economic policies, improving infrastructure, and political stability contribute to their resilience. Brazil and South Africa are also actively establishing connections with other trade partners, which could provide them with protection in the coming years.
Bhattacharya emphasized the understanding among emerging and global markets of the necessity to engage in trade with both the U.S. and China, while avoiding over-reliance on either. She noted the increasing trade activities among members of the BRICS group of developing nations. The report, however, did not include Russia in its analysis.
India's Strategies for Trade Realignment
India has been actively pursuing strategies to realign its trade relationships and reduce its dependence on specific countries. These strategies include:
- Diversification of Trade Partners: India is actively pursuing Regional Trade Agreements (RTAs) and Free Trade Agreements (FTAs) with developed economies such as Australia, the UAE and the UK. These agreements aim to enhance the competitiveness of Indian exports and provide access to new markets.
- Focus on Domestic Manufacturing: The "Make in India" initiative is designed to boost domestic manufacturing, attract foreign investment, and reduce reliance on export-driven growth.
- Strengthening Trade Relations with "Like-Minded" Economies: India is prioritizing economic reconnection with international partners, particularly "like-minded" economies with a Western economic orientation. This includes fast-tracking FTA negotiations with the European Union and aiming to complete a bilateral trade deal with the United States.
- Embracing a Multipolar Energy Order: India is strategically positioning itself in a multipolar energy order by deepening ties with Russia and bypassing U.S. dollar-dominated trade routes.
Impact of U.S. Tariffs on Emerging Markets
U.S. tariff policies can have several effects on emerging markets, including:
- Reduced Exports: Tariffs can lead to a decrease in exports from emerging markets to the U.S..
- Shifts in Supply Chains: Companies may seek to avoid tariffs by sourcing goods from other countries, leading to shifts in supply chains.
- Currency Depreciation and Inflation: Tariffs can contribute to currency depreciation and inflation in emerging markets.
- Investment Uncertainty: Tariffs can create uncertainty for foreign direct investment in emerging markets.
- Impact on Employment and Local Industries: Tariffs can lead to rising unemployment and have a significant impact on local industries in emerging markets.
Despite these potential challenges, emerging markets are demonstrating resilience through diversification, policy reforms, and strategic realignments. India's diversified economy, policy-driven growth, and strong domestic market provide it with an advantage over many other emerging markets in weathering global trade disruptions.
