Tariff Turmoil & India’s Tightrope: Navigating a New Global Trade Order
Since the start of 2025, Indian equity markets have seen a fair share of volatility. The Tariff tantrum began in January when Trump took office and along the way this tariff saga has gone through multiple iterations. The markets have consumed every piece of news from the White House with much anticipation and as you might have guessed, some were positive for India while some negative.
While the broader market trajectory has been downwards, surprisingly since the last 10 days, there’s a fresh bout of strong buying that the Indian markets have witnessed. Take a look at the returns of Nifty 50 from the start of the year up until Apr 7. And then from Apr 7 till date. 100 days of losses recovered within 15 days.
Pre & Post Tariff Announcement India
Well, it’s difficult for one to ascribe a particular reason for this up-move, however a calculated guess could be the way India is placed in this tariff punishment as compared to the rest of the world. We are at a much better position, as far as tariffs are concerned, in comparison to many other emerging and developed economies. Let’s start from the beginning, shall we?
International Trade policies, Trade deficits, Tariffs, and have become central topics in recent economic and political discourse. With nations like the United States maintaining significant trade deficits, especially with countries like China, the economic effects and political responses—particularly tariffs—have come under scrutiny.
What’s International Trade? When two countries trade between each other, by importing (buying) and exporting (selling) goods and services.
What’s Trade Deficit? When a country imports (buys) more goods than it exports, from a particular country, it is said to have a trade deficit.
What’s Tariff? A tax imposed by a government on imported goods and, occasionally, on exported goods. Tariffs are typically used to make foreign products more expensive, giving an advantage to domestic industries by making local products relatively cheaper and more competitive.
The strong tariff push from Trump’s end, has been coming through with the intention to protect local American industries. It all began on Apr 3, when Trump announced a sweeping set of tariffs under the banner of the “Liberation Day” trade policy, marking a significant shift in the country’s approach to global trade. Effective April 5, a blanket 10% tariff was imposed on all imports into the United States. In addition, countries with large trade surpluses with the U.S. faced steeper tariffs. China, for example, was levied with a cumulative tariff rate of 54%, including a newly added 34% duty on top of existing levies. India got impacted, with a 26% tariff now applied to its exports to the U.S. Other countries affected include Vietnam, Cambodia, Sri Lanka, Taiwan, and the European Union, with tariffs ranging from 20% to 49%.
India happens to be one of the largest trade partners with the US with bilateral trade reaching $129 bn in CY24. India exported $87.4 bn worth of goods to the U.S. and imported $41.8 bn, resulting in a trade surplus of $45.7 bn — up from $23.7 bn in CY15.
India’s key exports to the U.S. include electrical machinery , gems & jewellery, pharmaceutical products, nuclear reactor machinery and refined petroleum. On the other hand, India mainly imports energy commodities such as crude oil, natural gas, and coal from the U.S., along with pearls and precious stones, machinery, electronics, and aircraft components.
Now, as far as India is concerned, our economy is closely tied to global trade. Between 2008 and 2019, every 1% rise or fall in global trade growth affected India’s GDP growth by nearly 1.8%. For example, during the U.S.-China tariff war in 2019, India’s growth dropped to 3.5% from an earlier 6.8%.
Therefore, it’s essential to understand how these tariffs are going to impact different sectors of the economy. Let’s take a look.
*Tariff Differential refers to the tariff rate difference between India and US
For India, the newly imposed 26% tariff marks a substantial increase from the previous weighted average of 12%, effectively raising the average tariff rate by more than 2 times. While this rate is lower than that imposed on some other emerging Asian economies, it still presents significant challenges for Indian exporters. While negotiations are underway, only time will tell how far we can be better placed than competitors.
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