MUMBAI: The incoming US president Donald Trump’s tariff war warnings, if implemented at the threatened level, will shave 0.3 percent off our GDP next fiscal but will have no impact if the import duty hikes are partial, says a leading domestic brokerage.
Trump has been criticising New Delhi’s tariff regime for long, pointing to 100 percent tariffs on certain American goods, but he had spared Indian goods when he first issued a warning to its key trading partners — Canada, Mexico and China whom he warned of a 25 percent flat hike in all imports and and additional 10 percent on Chinese items over the 40 percent now.
However, on December 17, Trump added India to the list of countries that he wanted to strike, accusing it of imposing high tariffs and warning that he would impose reciprocal taxes on Indian products. Earlier he was referring to India as a “very big trade abuser.”
“The word reciprocal is important because if somebody charges us, India, for example, 100 percent, do we charge them nothing for the same? They send in a bicycle, we send them a bicycle, and they charge us 100 or 200 percent. If they want to charge us, that’s fine, but we’re going to charge them the same thing,” he said on Tuesday.
The US remains India’s largest trade partner with bilateral trade reaching nearly $120 billion in FY24, slightly surpassing trade with China.
“If Trump imposes import duty on Indian goods at full rate, the impact on our real GDP will be 30 bps, which means it will shave 0.3 percent off GDP next fiscal. But if the tariff imposition is only partial, it will have no impact,” Dhiraj Relli, the managing director of HDFC Securities, told reporters here Thursday.
But the tariff war will also impact domestic inflation, which according to the brokerage depends more on underlying economic growth, exchange rates, corporate margins and supply chain adjustments. Accordingly, they see inflation rising by 0.9 percent on full implementation of the tariffs and 0.1 percent on partial rollout.
While Canada will be the biggest victim with 2.5 percent loss in GDP, followed by Mexico losing 2.3 percent of its GDP, the impact of a tariff war on the global economy will be a loss of 1.1 percent on full scale and 0.2 percent in the event of a partial imposition, Relli said.
Meanwhile, Relli said they see the market returns to be in low to mid-single digits and the Nifty may scale the 26480-mark by end 2025. They don’t have a view on the Sensex, he added. At 26480 points, this will be almost a 15 percent gain from the current reading of the index.