How Trump's reciprocal tariffs hurt Indian economy and stock market
What's the story
President Donald Trump has imposed a 26% reciprocal tariff on all Indian goods entering the US.
The move aims to address the $46 billion trade deficit, citing India's higher tariffs on US products, such as 70% on automobiles and 50% on apples.
Trump labeled it a "discounted" rate, claiming India charges the US 52% on average.
The new levy will come into effect from April 9, and is expected to have far-reaching implications on India's economy.
Economic implications
Reciprocal tariffs will hurt these sectors
Initial assessments by analysts suggest that several key Indian sectors with substantial exports to the US could face increased costs and reduced competitiveness.
Electronics ($14 billion exports) and gems/jewelry ($9 billion) face direct impacts from the 26% tariff. Auto parts and aluminum, already under a 25% US tariff, face compounded pressures.
Pharmaceuticals and energy exports are exempt, but IT services may suffer indirect hits due to broader market uncertainty and reduced investor confidence.
Trade negotiations
India considering tariff cuts on US imports
In retaliation to the new tariffs, India is said to be mulling reducing tariffs on $23 billion worth of US imports. These include gems and jewelry, pharmaceuticals, and auto parts.
However, no agreement has been reached yet.
Sanjay Nayar from Assocham believes the impact of Trump's tariff plan will be less severe for India than other nations.
Impact
Economic implications of Trump's tariffs on Indian businesses
India's export-driven industries could see reduced US market access, affecting revenue and employment.
The tariffs may force businesses to absorb costs or seek alternative markets, potentially slowing economic growth and affecting profits.
Inflationary risks also loom if import costs rise or domestic producers hike prices to offset lost income from exports to the US.
According to Citi Research, Trump's reciprocal tariffs could lead to losses of up to $7 billion annually for India's economy.
Market reaction
Stock market's immediate reaction
Indian stock markets opened sharply lower on April 3, with the Sensex plunging 800 points and Nifty dropping by nearly 0.8%. The sell-off mirrored global trends, as Asian indices like Japan's Nikkei fell 3.4%.
Investors shifted to safe-haven assets like gold, exacerbating equity outflows. Analysts linked the volatility to fears of reduced export competitiveness and margin pressures.
At the time of writing, Sensex and Nifty had bounced back from their intraday lows but continued to trade in negative territory.