India’s food, textile and pharma sectors could be worst hit by the reciprocal tariff plans of the US administration though the impact of such a move will be higher on the competing economies of Asia-Pacific Region, Moody’s Ratings said Tuesday.
Across the region developing countries like India, Vietnam and Thailand have among the widest rate differentials relative to the US and the worst hit will be electronics, automobiles, food and textiles.
In addition to the hit from lower export demand, a key risk facing emerging economies in the region is that those aiming to nurture an export-led growth model similar to China and other advanced APAC economies will find it difficult to compete in an increasingly interventionist trade environment.
To reach some kind of an understanding before the reciprocal tariffs come into full force, India and US have agreed to negotiate a multi-sector trade agreement. Apart from reciprocal tariffs for which the detailed analysis has begun in the US, President Donald Trump has gone ahead and announced higher duties on steel, aluminium, pharma, auto and semiconductors among others. Additional duties have already been imposed on China. Other countries like Canada and Mexico have also been put on notice regarding tariffs.
Moody’s said while the US is an overall net exporter of food, feeds and industrial supplies to APAC, it is a net importer of capital goods, automotive vehicles and parts and consumer goods.
The rating agency said APAC’s overall policy response will be crucial in determining the full impact on credit strength. “We expect governments will likely act pragmatically, aiming to avoid escalation with the US, preferring to negotiate on a bilateral basis, as shown by recent developments,” Moody’s said.
Given a more restrictive trading environment, currencies of targeted APAC economies could face continued downward pressure given potentially higher capital outflows and a likely stronger US dollar, with regional central banks having a much narrower window for easing domestic monetary policies to support economic growth.