Asian markets displayed a mixed reaction to the recent announcement by U.S. President Donald Trump regarding increased tariffs on Indian exports. While Japan's Nikkei 225 and South Korea's Kospi initially showed positive movement, the broader implications of the tariffs have introduced an element of uncertainty in the region.
Trump's decision to raise tariffs on Indian goods stems from concerns over India's import of Russian oil, which he claims is then resold on the open market for substantial profits. He has described India's trade practices as "unjustified". In response, New Delhi has asserted that it will take measures to protect its own interests.
The specific details of the increased tariffs involve a uniform 25% duty on all Indian goods, potentially coupled with an additional penalty. This could significantly impact a large portion of India's exports to the U.S., possibly affecting nearly 50% of exports valued at over $85 billion. Sectors like textiles, garments, jewelry, and shrimp exports are expected to be particularly vulnerable. According to the Global Trade Research Initiative (GTRI), India's exports to the U.S. could decline by almost 30%, reducing them from $86.5 billion to $60.6 billion.
The new tariff regime positions India as one of the hardest-hit exporters in Asia, second only to China, which faces a 30% tariff. Competitors like Vietnam, Bangladesh, and Malaysia have lower duties, ranging from 15% to 20%, giving them a competitive edge. The GTRI notes that this situation puts Indian exports at a distinct disadvantage across most sectors, except for pharmaceuticals, energy products, critical minerals, and semiconductors.
Indian businesses are concerned about potential order cancellations from American clients due to these tariffs, which exceed those imposed on competitor nations. Sectors like textiles, steel, engineering, and agriculture have requested government support, including an Export Promotion Mission and assistance in the U.S. market. The Modi government is also urging exporters to develop and promote homegrown brands as a response. Measures like reduced testing fees for smaller exporters and employment-linked programs are under consideration.
Economists predict that the tariffs could lower India's GDP by approximately 0.2%. For example, if India's growth forecast was 6.6%, the tariffs could reduce it to 6.4%. While the overall effect may be limited, certain sectors like textiles, pharmaceuticals, electronics, agricultural products, and machinery will face direct pressure.
Some analysts suggest that a depreciation of the Indian Rupee could help offset the impact by boosting competitiveness. However, higher tariffs and a narrowing U.S. trade deficit may also slow global growth, adding deflationary pressure. The Reserve Bank of India (RBI) may need to consider monetary easing to counter the external drag.
Despite the challenges, some believe that the tariffs have reduced the likelihood of a swift conclusion to a bilateral trade agreement between India and the U.S. The Indian government aims to strike mutually beneficial agreements, emphasizing its commitment to global unity and shared responsibility.
