The ghost of tariff wars has returned and this time, India is squarely in the crosshairs. Can be called a surprising twist as well as for many, President Donald Trump on July 30 has announced a steep 25% tariff on Indian exports. This decision has rattled investors and policymakers alike.
As of this morning, the GIFT Nifty traded down 0.67% at 24,687.
This new tariff, set to be effective from August 1. This also marks one of the harshest trade measures the U.S. has imposed on any Asian country in recent times. Although New Delhi had been hoping for a softer deal, the actual blow turned out to be heavier than expected.
Trump tariff: The fiery statement
“While India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high…and they have the most strenuous and obnoxious non-monetary trade barriers of any country,” Trump posted on his platform, Truth Social.
But that was not all. Trump also took aim at India’s energy and defence ties with Russia, threatening an additional penalty beyond the headline 25% tariff. But as of now, the details on that front remain fuzzy for now.
Trump tariff: Not just India in the firing line
India was not alone at the receiving end of Trump tariff led uncertainty . Trump also announced a 50% tariff on Brazilian goods, with exceptions like aircraft and energy. Meanwhile, South Korea managed to strike a deal, dodging a harsher penalty with a 15% rate.
Despite this move, Trump hinted that trade talks with India would continue, giving some hope that the tariff rate could eventually be reduced to the anticipated 15% range.
Indian sectors that could take a hit
How the markets will react to it is still unpredictable but the 25% tariff is not as well without consequences. Several Indian sectors stand exposed –
- Textiles and garments
- Auto components
- Leather goods and footwear
- Gems and jewellery
- Certain food exports
These are sectors where the U.S. is a key buyer and even a small pricing disadvantage could hurt competitiveness.
What market experts are saying
Here is how the Street is reading the situation –
“The 20-25% tariff number has been mentioned earlier… Prime facie, this appears to be negative. But with Trump, it’s best to wait it out and see through the finer details. One can never be sure how many twists and turns are still left in this saga,” said Siddharth Khemka, Head of Research, Motilal Oswal.
“The direct impact is likely on stocks where the U.S. sets the marginal price – pharma, auto ancillaries, some industrials… However, the indirect impact of capital flight could be more dominant and may hurt domestic cyclicals like real estate, NBFCs and industrials. On the flip side, INR depreciation could benefit IT stocks,” said Nuvama Institutional Equities
“While higher than anticipated, the 25% figure falls within the expected range. What needs close watching is the undefined penalty tied to Russia ties. From a technical standpoint, this could hurt near-term export competitiveness and spark currency volatility if sentiment worsens,” said Feroze Azeez, Joint CEO, Anand Rathi Wealth
Still, Azeez believes India’s market resilience driven by strong domestic flow could cushion the blow.
“FIIs are already 85% short. A major sell-off is unlikely. Dips will be buying opportunities for investors with 2-3 year horizons,” he added.
“The US Q2 GDP at 3% came in above estimates. The private payroll growth was also above estimates. The Bank of Canada held rates steady . The US Fed, as expected , held rates constant, however the hawkish tone in the press conference by Chair Powell led to September rate cut probabilities falling to 41% . The Bank of Japan has also held rates steady this morning . Two positive trade developments were that the tariffs on South Korea have been reduced to 15% from the threatened 25% , and the Barzil tariffs of 50% have been delayed by 7 days while a long list of goods have been excluded from these tariffs. The copper market is in a tizzy as the 50% tariffs on copper have been implemented while exclusing refined copper/cathodes. Copper in the US market fell by 20% as a result,” said market veteran Ajay Bagga.
Trump Tariff: Is this just short-term pain?
There is still a sliver of hope. Since Trump left the door open for talks, analysts believe there is room for tariff rates to eventually soften especially if India recalibrates its stance on energy imports or negotiates sector-specific exemptions.