The Trump tariff announcement has sent shockwaves across the global markets and sparked fears of a global recession. Speaking on what the implications are for India, Anand Shah, CIO – PMS and AIF Investments, ICICI Prudential AMC, in an exclusive conversation with Financial Express.com, highlighted that this could trigger growth challenges in US and lead to margin pressure for manufacturers reliant on US markets.
Shah pointed out that the, “The way to look at tariffs is that the U.S. is the world’s largest consumer economy and a net importer. The government is now saying that access to this large consumer base will come at a price.”
Assessing tariff impact on consumers, manufacturers?
US President Donald Trump has announced a levy of 10% baseline tax on all imports and 26% higher tariff rate on India. The tariff amount differs from country to country with China seeing a significantly higher rate of 50-55%. Shah explained that, “Higher taxes on consumption mean either consumers pay more or manufacturers, exporters absorb the cost if they have higher margins. If not, the tariff burden passes on to the consumer translating to higher prices and slower growth in the US.”
He added that, “From a manufacturers’ point of view, especially those reliant on US markets, this is a double whammy as both sales and margins could come under pressure. To counter growth challenges in the US, we could see stimulus or higher Government spending in Europe, China and to some extent in India as well in a bid to support domestic consumption.”
Trump Tariff impact: Way forward
According to him, “there could be a case of countries announcing their own anti-dumping duty or tariff barrier such that surplus goods are not dumped in their own markets, leading to inflation. While global consumption may rise on the back of supportive Government measures, inflation could limit gains. This makes domestic manufacturers serving domestic markets the biggest beneficiaries, be it in India, US, Europe or China.
Most market experts expect hectic negotiations over the next 3-6 months even as people are assessing the impact for now. Anand concluded that one needs to wait and watch at the moment, “the real impact will unfold over time. In India, we will continue our approach of stock-picking, evaluating which companies are impacted and which remain resilient.”
This is an excerpt from a candid conversation with Anand Shah, CIO – PMS and AIF Investments, ICICI Prudential AMC. Keep watching the space for a detailed interview.