MUMBAI: While world stocks tanked after US president Donald Trump slapped punitive 25% tariffs on Mexico and Canada, and an additional 10% on China effective Tuesday, in his tit-for-tat tariff wars, Dalal Street showed some sense of sanity, refusing to be cowed down in knee-jerk reaction. The benchmarks closed with just 0.13% losses on Tuesday.
But the indices have entered deep-red for the sixth consecutive months of losses. Since October, the market lost more than 16%.
In retaliation China, the largest trading partner of the US and Canada, which is the third largest source market for the US, announced equal measure of retaliatory tariffs, Mexico, which is the second largest source market for the US and the largest auto supplier said it will announce counter tariffs shortly.
The trade war left world stocks bleeding to the tune of 1.5-2% while China bucked the trend with minor gains.
While Dalal Street showed some sanity, pharma, IT and auto-parts stocks lost heavily with pharma and IT stocks tanking up to 4% and auto parts scrips losing 2%.
While domestic pharma companies, which supply as much as 43% of genetic drugs to the US, software companies earn more than 65% of their income from the US alone.
The shares of pharma and IT companies tumbled up to 4% after the punitive tariffs on Canada, Mexico and China came into effect Tuesday. Both Nifty IT and Nifty Pharma were in deep red.
LTI Mindtree was the top loser on Nifty IT, falling nearly 4%. The stock has so far fallen nearly 21% in the past one month alone. Coforge, Persistent and HCL Tech shares were down 2% and Mphasis lost 1%. And Infosys, Wipro, L&T Technology and Tech Mahindra closed with marginal losses and TCS bucked the trend to close in the green.
Among pharma stocks, Sun Pharma was the top loser with over 2% loss. Gland Pharma and Mankind Pharma dropped over 1%, while Torrent Pharma, Cipla, Lupin, Aurobindo Pharma and Dr Reddy's shares were also in the red.
But Biocon rose 3%, Laurus Labs, Abbott India, JB Chemicals, and Natco Pharma gained over 1% each and so did Ajanta Pharma, Glenmark, Alkem Labs and Zydus Life.
Auto components makers Samvardhana Motherson and Sona BLW shares lost 2% after the tariffs come into force. This is because domestic auto component exports to Mexico account for 3% of the total $21.2 billion in exports, around $656 million, according to Elara Securities. For Samvardhana, Mexico contributes 4% of its overall revenue and around 2% for Sona’s total revenue.
Similarly risk-on assets like cryptocurrency also sank Monday after Trump refused to pardon Canada and Mexico, leading to deep cuts in the US markets too on Monday. Bitcoin sank below $90,000, erasing in a flash its 10% gain from Trump’s announcement on Sunday of the creation of a US strategic crypto reserve.
Of the immediately affected three nations, China and Canada retaliated with counter tariffs. Canadian prime minister Justin Trudeau announced a 25% tariff on 155 billion Canadian dollars ($107 billion) worth of US goods.
China slapped an additional 15% tariff on US farm goods like corn and soybeans apart from also restricting exports to 15 US companies effective March 15.
With the new 10% duties on Chinese goods the total amount of new tariffs imposed in just about a month to 20%.
China had already raised duties on certain US energy imports and putting two US companies on an unreliable entities list that could restrict their ability to do business in the Asian country. This came after the first round of new US tariffs early February.
The average effective US tariff rate on Chinese goods is thus set to hit 33%, up from around 13% before Trump began his latest term in January, according to an by Nomura.
US exports of farm products to China account for the largest share of US goods shipped into China at 1.2%, or $22.3 billion, as of 2023, followed by oil and gas with 1% share or $19.3 billion, according to Allianz Research analysis, pharmaceuticals rank third at 0.8% or $15.6 billion.
Meanwhile, veteran investor Warren Buffett of Berkshire Hathaway warned that aggressive tariff policies could trigger inflation and burden consumers.
“Tariffs are actually, we’ve had a lot of experience with them. They’re an act of war, to some degree,” Buffett told CBS News.
Trump’s tariffs are expected to significantly raise consumer prices on various goods not just in the US but across the affected countries.
According to Moody's, effects of different tariffs on prices of common household items said a 10% tariff charged on Indian tablecloths would increase their eventual price by roughly 2%. That's due to several countries making tablecloths, with retailers having an option of replacing suppliers or incurring the loss to maintain price competitiveness. Equally, domestic linen costs overall are set to increase by only 0.8%.
A 10% tariff on a $21.99 Italian bottle of wine, for instance, would drive its price up to $24.08. Because many shoppers who like certain wines will not switch, firms can pass through most of the tariff without a loss of sales, it added.
On a 10% tariff on a $500-video game console will increase the price to $548. Similarly automobiles, appliances, and electronics will experience widespread price increases, it said.
Mexico is the biggest supplier of passenger cars to the US, with 23% of US imports in 2024 and the impact of 25% additional tariffs will be industry and not just on cars alone, since manufacturers and retailers take advantage of the ability to make higher profit margins.
On the broader economic impact, Trump's tariffs will affect supply chains and production costs and American businesses that depend on foreign parts will have to pay more, potentially passing the cost on to finished products, slowing hiring, or changing where they make things.