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The prospect of reciprocal tariffs announced by US President Donald Trump has sparked global concerns. While many nations brace for potential economic repercussions, India might experience a minimal macro impact or even benefit, provided it strategically navigates the situation. It is crucial to acknowledge that some degree of impact is unavoidable, albeit likely to be indirect and minimal. A slowdown in global trade and growth, triggered by escalating trade tensions, could negatively affect India's exports. However, the consensus among analysts suggests that this effect is likely to be temporary, unless the situation escalates into a full-scale trade recalibration. Despite the growing exposure to the US, with exports reaching $77.5 billion in FY24, a significant portion of these exports falls under categories where India is either not easily substitutable or where US consumers would ultimately bear the cost of tariffs. Sonam Srivastava, Founder and Fund Manager at Wright Research, stated, "Unless it triggers retaliatory spirals or disrupts supply chains, this is more bark than bite. That said, the long-term implication is that India must move up the value chain and diversify its export base if such frictions become more frequent." India's robust domestically driven economy provides a buffer against the impact of Trump's tariffs. Exports of goods and services account for 21% of GDP as of FY24, and goods exports alone constitute an even smaller share, at 12% of GDP. Even with the uncertainty surrounding the exact nature of the reciprocal tariffs, most analysts anticipate additional tariffs ranging from 6.5% to 8% on India's exports to the US. CareEdge Ratings estimates that if this assumption holds true, India's direct export loss from such tariffs could be limited to around $3.1 billion annually, representing a mere 0.1% of GDP. In comparison, other Asian economies, such as Thailand, exhibit a much higher export dependency, with goods and services exports accounting for approximately 60% of GDP, making them far more vulnerable to the tariffs. The reciprocal tariffs are not exclusive to India but apply to other countries as well. However, the impact on countries like China will be significantly more pronounced. Currently, the US imports 10.5% of its goods from China, while India accounts for only 2.5% of US trade. Furthermore, India-US trade has experienced a compound annual growth rate (CAGR) of 5% from 2014 to 2022, according to World Bank data. Given that the US imports nearly 15% of its goods from China, the tariffs are expected to have a considerable negative impact on the Chinese economy. Chethan Shenoy, Director & Head - Product & Research at Anand Rathi Wealth, explained, "This could create opportunities for India by potentially increasing its export numbers, as any tariffs imposed would likely be lower than those on China, giving India a competitive advantage." India's strong GDP growth potential, estimated at 6.6% for FY25, further enhances its resilience. Inflation remains under control, with CPI inflation for February at 3.6%, down from 4.31% in January 2025. The quarterly average CPI is below the RBI’s initial projection of 4.4%. India also boasts a robust fiscal position, with the FY25 fiscal deficit revised down to 4.8% from 4.9%. Market valuations appear reasonable, with no major froth observed in Indian equity markets. Shenoy projects earnings for Nifty 50 and large caps at 10% for FY25 and 14% for FY26, while small and mid-caps are expected to grow at 22% in FY25. "We can expect Nifty 50 to deliver a CAGR of 11-13% over the medium term given the strong macroeconomic and earnings growth outlook."
The potential benefits for India stem from several key factors. Firstly, the composition of India's exports to the US includes a significant proportion of goods that are either difficult to substitute or where the burden of tariffs would fall on US consumers. This provides a degree of insulation from the direct impact of the tariffs. Secondly, India's relatively low export dependency, with exports accounting for a smaller share of GDP compared to other Asian economies, makes it less vulnerable to fluctuations in global trade. Thirdly, the expected higher tariffs on Chinese goods could create opportunities for India to increase its export volumes, as Indian exporters would gain a competitive advantage. Finally, India's strong macroeconomic fundamentals, including robust GDP growth, controlled inflation, and a healthy fiscal position, provide a solid foundation for weathering any potential economic headwinds. The article highlights the importance of diversification and moving up the value chain in India's export strategy. While the immediate impact of the tariffs may be limited, India needs to proactively address potential future trade frictions by broadening its export base and focusing on higher-value products. This will enhance its long-term competitiveness and reduce its vulnerability to external shocks. The role of domestic demand in cushioning the impact of tariffs cannot be overstated. With a large and growing domestic market, India can mitigate the negative effects of reduced export demand by focusing on satisfying domestic consumption needs. Policies aimed at stimulating domestic demand, such as infrastructure development and investment promotion, can further enhance India's resilience. The impact of trade tariffs is a complex issue with far-reaching implications for the global economy. It is crucial for policymakers and businesses to carefully analyze the potential risks and opportunities and to develop appropriate strategies to mitigate the negative effects and capitalize on any potential benefits. In the case of India, a proactive and strategic approach to trade policy, coupled with strong macroeconomic fundamentals, can enable the country to navigate the current challenges and emerge even stronger in the long run. The assessment provided by experts and analysts underscores the importance of sound economic policies and a focus on long-term competitiveness. While the immediate impact of the tariffs may be limited, the potential for future trade frictions remains a concern. Therefore, India needs to continue to invest in infrastructure, education, and research and development to enhance its competitiveness and attract foreign investment.
The potential benefits for India stem from several key factors. Firstly, the composition of India's exports to the US includes a significant proportion of goods that are either difficult to substitute or where the burden of tariffs would fall on US consumers. This provides a degree of insulation from the direct impact of the tariffs. Secondly, India's relatively low export dependency, with exports accounting for a smaller share of GDP compared to other Asian economies, makes it less vulnerable to fluctuations in global trade. Thirdly, the expected higher tariffs on Chinese goods could create opportunities for India to increase its export volumes, as Indian exporters would gain a competitive advantage. Finally, India's strong macroeconomic fundamentals, including robust GDP growth, controlled inflation, and a healthy fiscal position, provide a solid foundation for weathering any potential economic headwinds. The article highlights the importance of diversification and moving up the value chain in India's export strategy. While the immediate impact of the tariffs may be limited, India needs to proactively address potential future trade frictions by broadening its export base and focusing on higher-value products. This will enhance its long-term competitiveness and reduce its vulnerability to external shocks. The role of domestic demand in cushioning the impact of tariffs cannot be overstated. With a large and growing domestic market, India can mitigate the negative effects of reduced export demand by focusing on satisfying domestic consumption needs. Policies aimed at stimulating domestic demand, such as infrastructure development and investment promotion, can further enhance India's resilience. The impact of trade tariffs is a complex issue with far-reaching implications for the global economy. It is crucial for policymakers and businesses to carefully analyze the potential risks and opportunities and to develop appropriate strategies to mitigate the negative effects and capitalize on any potential benefits. In the case of India, a proactive and strategic approach to trade policy, coupled with strong macroeconomic fundamentals, can enable the country to navigate the current challenges and emerge even stronger in the long run. The assessment provided by experts and analysts underscores the importance of sound economic policies and a focus on long-term competitiveness. While the immediate impact of the tariffs may be limited, the potential for future trade frictions remains a concern. Therefore, India needs to continue to invest in infrastructure, education, and research and development to enhance its competitiveness and attract foreign investment. In conclusion, while the prospect of US tariffs raises concerns globally, India's unique economic strengths and strategic advantages position it to potentially benefit from the situation. By leveraging its domestic market, diversifying its exports, and maintaining strong macroeconomic fundamentals, India can navigate the challenges and capitalize on the opportunities that arise from the evolving global trade landscape.
Furthermore, it's important to analyze the potential risks and limitations of India benefiting from the trade war. One significant risk is the potential for retaliatory measures by other countries, including China. If China were to retaliate against the US by imposing tariffs on goods from other countries, including India, this could offset any potential gains from increased exports to the US. Another limitation is the capacity of Indian exporters to quickly scale up production to meet increased demand from the US. Even if India is able to gain a competitive advantage over China, it may take time for Indian companies to ramp up production and supply the necessary goods to the US market. Additionally, the quality and competitiveness of Indian goods may not always be sufficient to compete with Chinese goods, even with the imposition of tariffs. Therefore, it's essential for Indian companies to focus on improving the quality and competitiveness of their products to ensure that they can effectively compete in the global market. It is vital to acknowledge the complex interplay of factors influencing India's potential gains from the trade war. While the opportunities exist, capitalizing on them requires strategic planning, proactive adaptation, and sustained commitment to innovation and competitiveness. Failure to address these limitations and risks could undermine India's ability to fully realize the potential benefits of the changing global trade landscape. In conclusion, while the assessment suggests India has a potential advantage, this is not a guaranteed outcome. Vigilance, adaptability, and strategic investment are crucial for India to successfully navigate the complexities of the evolving global trade environment and secure its long-term economic interests.
Source: India could benefit from reciprocal tariffs even as world fears Trump tariff threats. 3 reasons why