What will be the impact of Trump tariffs & US-China trade war on India

Summary

Highlights

• India's gems and jewelry sector could be severely impacted by the tariffs, losing market share to Switzerland. 💍
• Footwear industry might gain traction as tariffs on Vietnam and China are higher, opening windows for Indian producers. 👟
• Macro Sutra discusses how a 90-day tariff pause affects global and Indian markets, adding layers of uncertainty. ⏱
• Strategic reforms in India can capitalize on the global trade reconfiguration to boost its economic standing. 📈
• Potential dumping of Chinese products into Indian markets could suppress local industries further. 🇨🇳

Key Takeaways

• India faces both challenges and opportunities amidst the US-China trade war. 🇮🇳
• Footwear and apparel sectors might benefit due to higher tariffs on competitor countries. 👞👗
• Indian gems and jewelry industry might suffer due to high tariff rates compared to competitors. 💎
• Economic policy uncertainty is a major hurdle for global traders and investors. 🔄
• China may dump excess products into Indian and other Asian markets, affecting domestic producers. 🏭

Overview

Chapters

• 00:00 - 01:30: Introduction and Overview of Tariffs The chapter provides an introduction and overview of tariffs, focusing on recent actions by the Trump administration. The discussion centers around the announcement of tariffs on nearly 60 countries, followed by a 90-day pause, with the exception of China. It explores the potential impact of these tariffs on both the Indian and global economies.
• 01:30 - 03:00: Current Status of Tariffs In this chapter, Radika Pande, an associate professor at NIPFP, discusses the current status of tariffs. She provides an update on the tariff announcements made by the Trump administration, specifically highlighting the tariffs imposed on metals such as steel and aluminum since mid-February. The chapter aims to give a brief overview of the developments in tariff announcements as of April 2nd and April 9th.
• 03:00 - 05:30: Impact on India and Exempted Sectors The chapter focuses on the economic and trade measures announced by the Trump administration affecting India and exempted sectors. It includes discussions on the reciprocal tariffs imposed by the US on approximately 60 countries starting from April 2nd. The goal was to address the trade imbalance, as claimed by the US government, due to the disparity in market access, where other countries have greater access to US markets compared to the access provided to US exports.
• 05:30 - 08:00: Vulnerable Sectors and Global Perspective The chapter titled 'Vulnerable Sectors and Global Perspective' discusses the increase in tariffs imposed by the United States on imports from various countries. Initially, tariffs were around 3%, but they surged to 22% as of April 2nd. Additionally, specific tariffs on China saw significant hikes, starting at 20% and reaching 34% by April 2nd. This chapter likely explores the implications and consequences of these tariff policies on global trade and the sectors that are most vulnerable to these changes.
• 08:00 - 12:00: Opportunities for India The chapter titled 'Opportunities for India' discusses the escalating trade tensions between the US and China. As of April 2nd, the US had raised its tariffs on China by 50%, reaching a current rate of 125% at the time of the discussion. The chapter also highlights that other smaller countries, including Vietnam, Cambodia, and India, are facing tariffs, suggesting a widespread impact of these trade policies.
• 12:00 - 16:00: Uncertainty and Strategic Responses The chapter discusses the concept of tariffs and the methodology behind their implementation based on trade deficits and imports from specific countries. It explains the strategy of determining reciprocal tariffs. Additionally, the chapter highlights a sudden policy change announced by President Trump, declaring a 90-day halt on the rollout of new tariffs, signaling a strategic shift in trade policy.
• 16:00 - 21:00: Economic Policy and Market Conditions This chapter discusses the implementation and impact of reciprocal tariffs, specifically highlighting the situation as of April 9th, when these tariffs were supposed to come into effect but were postponed. The primary focus is on the tariffs towards China, which remain elevated as a form of retaliation due to China's previous countermeasures. The tariff rate imposed on China stands at 125%, showcasing a punitive economic stance. Meanwhile, tariffs on other countries that were announced on April 2nd have been suspended.
• 21:00 - 26:00: Role of RBI and Policy Directions The chapter discusses the role of the Reserve Bank of India (RBI) and policy directions, focusing on tariff regulations. A baseline tariff of 10% is applied to all countries, with additional tariffs based on trade deficits with individual countries. While reciprocal tariffs have been halted, the baseline tariff remains in place. The chapter highlights the impact of reciprocal tariffs announced on April 2nd against India, noting which sectors were most affected.
• 26:00 - 31:30: Audience Questions and Discussion This chapter discusses the exemption of specific sectors such as pharmaceuticals, semiconductors, copper, and energy from reciprocal tariffs globally. These exemptions apply not only to India but across multiple countries. India's position as a significant supplier of pharmaceutical products to the US highlights the importance of these exemptions for the country.
• 31:30 - 33:00: Concluding Remarks The chapter discusses the uncertainty surrounding tariffs and their impact on various sectors. While tariffs have been temporarily halted, there is no clear indication of their future direction. They might return at reduced rates, but currently, they are halted, leaving some sectors particularly vulnerable to potential reciprocal measures.

What will be the impact of Trump tariffs & US-China trade war on India Transcription

• 00:00 - 00:30 Hello and welcome to this episode of Macro Sutra. I'm Akang Sha Mishra. Now tariffs have been the word on everybody's minds this week with the Trump government first announcing a host of tariffs on almost 60 countries on 2nd April what he called liberation day and then on Tuesday 9th April announcing a 90-day pause on every country's tariffs except for China. However, concerns still remain about how these tariffs whenever they reimposed are going to affect not just Indian but the global economy. And to discuss precisely that
• 00:30 - 01:00 we have with us Radika Pande, associate professor at NIPFP. Thank you so much for being with us. Thank you. Now, first things first, what is the status of terrorist right now? Can you just give us a short update on what was announced on April 2nd and April 9th? Yeah. So even before 2nd April since mid of February we have seen that on uh various sectors the Trump administration uh has announced tariffs for example tariffs were announced on metals like steel and aluminium tariffs were
• 01:00 - 01:30 announced on uh uh auto auto sector and so on and then from 2nd of on 2nd of uh April the Trump administration announced reciprocal tariffs on a set of around 60 countries. countries uh with the objective of correcting the trade balance. So uh according to the US government they are having a trade deficit with other countries because while the US provides greater market access to uh exports from other countries the other countries are not
• 01:30 - 02:00 providing. So the US is also raising its uh tariffs on imports from other countries. uh and as a result of uh the tariffs that were imposed on 2nd of April the effected weighted tariff uh in the US rose to 22%. So it was around 3% it rose to 22%. Uh so that was on 2nd of uh April that uh tariffs were announced and uh because on China tariffs were announced earlier also 20% and then on 2nd April 34% were announced. So it
• 02:00 - 02:30 makes it 54% as of uh 2nd of April and since then we have seen uh tit fortat happening between US and China. US further raising the tariffs on China by 50%. And as the uh the time that we are speaking now the current rate of tariffs on China is uh 125%. uh and then there are tariffs on other countries as well like even smaller countries uh Vietnam, Cambodia, uh India all countries are
• 02:30 - 03:00 subject to uh tariffs and the basic formula that they have used to announce tariff is how much the how much is the trade deficit with that particular country uh divided by imports from that country. So that seems to be the guiding principle for arriving at reciprocal tariffs. Uh but then yesterday there was a complete reversal of policy was announced uh last night where uh u Trump announced a 90-day halt on the roll out
• 03:00 - 03:30 of reciprocal tariffs because on 9th April was the day when reciprocal tariffs were to come into implementation but they were put on hold and there are various reasons that we can talk about subsequently. uh but on China tariffs remain because uh according to the US China has retaliated so they want to uh punish China by keeping elevated tariff rates at 125%. But on other countries as of now the uh tariff that were announced on 2nd of April have been halted but the
• 03:30 - 04:00 baseline 10% tariff remains on all countries. So there was a baseline tariff and then on top of that was uh tariff based on the trade deficit with each country. So that uh reciprocal tariff has been halted but the baseline tariff of 10% uh still remains. So that's the status as of now. Great. Now coming to the tariffs, the reciprocal tariffs that were announced on 2nd April against India, right? Um what were the sectors that were the worst hit and
• 04:00 - 04:30 which sectors were exempted? Can we talk a bit about that? Yeah. So uh in general uh sectors like pharmaceutical, semiconductors, copper and energy these were the sectors that were exempt from reciprocal tariffs globally not just for India but across uh countries uh uh these sectors were exempted from tariffs reciprocal tariffs and that was a comforting sign for India because as regards pharmaceutical India is a major supplier of uh pharma products to the US
• 04:30 - 05:00 as well as energy. So if we leave aside that then there are certain sectors uh which are vulnerable because you know though the se the tariffs have been halted we do not know the future trajectory. They may come into existence they may come into existence at a at a at a much reduced rate but as of now they are in existence but they have been halted. So it's worthwhile to looking at which sectors are uh you know possibly impacted by the rollout of reciprocal
• 05:00 - 05:30 tariffs and there we see uh we need to see in relative terms you know we look at those countries uh which are competitors of uh products which we are exporting to the US. So if we look at you know the top uh uh sectors top exports from India to the US we see that there are uh electronic goods uh gems and jewelry pharmaceuticals uh machinery and instruments and so on. So these are some of the big sectors and there we see and also like apparel textiles and so
• 05:30 - 06:00 on. uh but gems and jewelry is one sector which is likely to be impacted uh with the present state of 26%. Uh because uh we are one of the major uh exporters of gems and jewelry products. Uh and uh lately our position we were the top number one supplier of gems and jewelry but uh as per uh the last financial year's data we have been uh surpassed by Switzerland. And if we look at the uh tariff differential,
• 06:00 - 06:30 Switzerland is facing a lower tariff than India. So there is every likelihood that the market share will shift from India to other countries where the tariff rate uh is lower than uh what India is subject to. And also there's one more important insight that comes into play you know the elasticity of demand because with tariffs what is going to happen is that the price of that commodity is going to rise. Now if the elasticity that means the responsiveness of demand to prices is
• 06:30 - 07:00 higher then with price rise demand goes down. So now gems and jewelry is a discretionary product. It's not something which is a necessity. So if prices rise exorbitantly the demand will go down as it is there are these uh you know uh concerns about US economy uh gripping sinking into recession. the possibility the probability of recession is rising and under such situation uh the the demand for discretionary items like gems and jewelry is expected to go
• 07:00 - 07:30 down. So gems and jewelry is one sector which uh could be impacted by reciprocal tariffs if they are uh you know implemented rolled out in the present form that were there in 2nd April. also uh machinery, electronic goods because there are there is a possibility that uh some of our market share shifts to uh those countries where the tariff rate is lower but again there are various sectors where we have a window of opportunity. So and that is important to
• 07:30 - 08:00 talk about uh because amongst the uh Southeast Asian countries and also ASEAN peers Asian economies India is subject to relatively lower tariffs. We know China is exorbitantly uh tariffed. But then the countries like Vietnam, Taiwan, Cambodia, Bangladesh, Thailand, all these countries are subject to higher tariff rates than uh India. And therefore there are those sectors where these countries are the major suppliers.
• 08:00 - 08:30 There is an opportunity for India to you know fill that gap because they are subject to higher tariffs. For example, we found very interestingly that you know sectors like footwear in where India has a major advantage because what we see is that Vietnam and China together account for 70% of the total supply of footwear to the US. Now maybe we cannot compete with the with China but at least with Vietnam we can take some part of their market share and we
• 08:30 - 09:00 already are seeing that you know Tamil Nadu is emerging as a major footwear hub. So there is a possibility of shifting some of the market share for from such countries uh to India. Similarly uh furniture similarly apparel uh from Bangladesh and Vietnam some of the market share can shift to India and more importantly most of these sectors are labor intensive sectors. So if the market share shifts to these uh sectors then employment growth will also be
• 09:00 - 09:30 positively impacted. Uh so that is the sectoral impact. Great. Um and what I'm understanding from this is that we need to look at tariffs not just in terms of what tariffs are imposed on India but also worldwide to get a picture of how it's going to affect the Indian economy also. So can you elaborate a bit about how a global picture of tariffs helps in understanding the impact on Indian economy? Right. So as I said we need to see India in a relative perspective.
• 09:30 - 10:00 That is what we see that as I said we need to see uh which are the sectors where those countries are the biggest suppliers who are taxed more than India who are subject to higher tariffs than India. As I said we need to look at those sectors where China, Vietnam, Bangladesh, Cambodia, Taiwan, Thailand these countries are the biggest suppliers because these are the very countries which are subject to higher tariffs than India. Now if we can take
• 10:00 - 10:30 some part of their market share we will be benefited and therefore sectors like footwear and furniture apparel both knitted and non-nitted are some of the sectors where we can gain also toys is again one sector where we can gain because right now again China and Vietnam are the uh bigger biggest suppliers of uh these products. So and again as I said these are most of these products where we do have a window of opportunity are labor inensive sectors. So uh through a right mix of uh you know
• 10:30 - 11:00 investment and policy support it is possible that we are able to garner some market share. So it can be uh a a good thing for India. We can be positioned uh you know uh in the uh reconfigured value chain. in India's position can be strengthened if we are able to uh take this window of opportunity and use it constructively. Right. But again there is this 90-day pause on tariffs absolutely and uh there's obviously a
• 11:00 - 11:30 lot of uncertainty in exactly what the final impact of tariffs is going to be. So a could you elaborate on this uncertainty? What are the different possibilities that could happen in the 90 days and b what steps is India taking? What steps has the RBI taken? Right. So that's correct. Now these 90 days are going to be crucial and we do not know uh what is going to happen tomorrow. There is a lot of uncertaintity and uh the uncertainty can be gauged from the fact that uh there is a very important metric called economic
• 11:30 - 12:00 policy uncertaintity index and if we see that index we see that it has skyrocketed like anything uh for all countries. So there is this uh level of uncertainty but it's also important to understand why this 90-day pause has been uh announced. There could be various reason. One reason is definitely that uh even the US importers are puzzled you know from where to buy what to buy from which country to buy and it's not very easy to uh fix the
• 12:00 - 12:30 disruptions to the value chain that have uh happened due to the imposition of tariffs. So they need to calculate, they need to reconfigure, they need to recalibrate uh from which country, from which supplier they are going to import which commodity and that requires some time and therefore I think that is one of the reasons why this breathing space has been provided so that both importers and exporters can come on table and decide uh and to you know talk about the
• 12:30 - 13:00 possible concessions that exporters can provide because it's not just tariff differential you know as we previously spoke that India has advantage. Yes, India does have an advantage. But if those very countries as as we talked about China, Vietnam, uh Cambodia, Thailand, Bangladesh, if they further reduce their export prices, then our advantage will be offset. Uh so what is going to happen? Various possibilities. It may be that they are they are further suppressing their export prices so that
• 13:00 - 13:30 their market share is not lost to the competitor uh countries. That is the possibility number one. Second, as I said that there's going to be this reccalibration of value chains which will take some time and therefore 90 days is provided. And the third factor which I think is a very uh important factor for us to understand is what's happening in the US markets. It was expected that the US stock market uh will crash and that happened. But what was not expected was that the US bond
• 13:30 - 14:00 market will also crash. uh because what was expected was that normally what happens the conventional playbook is that when there is a uh general level of uncertaintity in the market people tend to move to safer assets and they tend to move to uh US uh treasury eels which are considered to be safe heaven assets. This time around that did not happen. In fact those who are holding uh US treasury eels are also selling. So there is an excess supply in the market, less
• 14:00 - 14:30 number of buyers, excess supply that mean that prices crashed and the yields rose. Now when the yield rose, it's a problem for the US uh government because their cost of borrowing will rise and therefore and a lot of uh the reason for the reason for the surge in yields is linked to tariff because countries like China are the biggest holders one of the prominent holders of US Treasury Eels. So now when tariff is imposed on them and their export revenue is going to be
• 14:30 - 15:00 impacted so they are selling uh they they are offloading their holding and that resulted in a sharp surge and we see that you know US 30-year bond yield US 10year bond deal last two days we've seen them touching 5% it's a very very uh extraordinary development and that I think also led to was one of the immediate triggers to uh roll back the implementation of tariff tariff for uh 90 days. But the concern what now is is
• 15:00 - 15:30 may happen is that uh because China is still subject to a very high tariff and other countries are uh tariff is on hold. There is a possibility that China is going to dump products to India and other countries uh because China is not able to have a market in the US. So they will dump China and even other countries whoever is losing market share there will be a lot of dumping. So in addition to the cost that tariff is imposing what is an additional
• 15:30 - 16:00 concern for policy makers, industries, manufacturers now is the threat of dumping right and that is obviously a big concern for India also for India because we've already seeing dumping of steel happening. We are seeing that US uh sorry China is already in a grip of deflation. So the prices are very low. So they are able to suppress their prices and sell in other markets and uh therefore uh Indian industries where already we are seeing private investment
• 16:00 - 16:30 is a problem it's not picking up the delay could be uh further pronounced because of the threat of dumping in not just steel and aluminium but various other uh products like paper like rubber uh and other products. Right now before we get to the audience questions, let's just quickly discuss how has the Reserve Bank of India responded to this and what is India's focus as of now. Yeah, so that's again a very uh important uh policy challenge for not only India's central bank but central banks across
• 16:30 - 17:00 the world uh because there are two uh opposite implications of tariff. One is that the prices are expected to rise and the other is that growth is expected to be lower. So these are two uh opposite impacts and the uh the various central banks are now facing this policy conundrum whether to uh lower the rate whether to focus more on growth or to inflation. Uh but in India's case we had our uh policy review uh yesterday and the RBI rightly decided to cut the
• 17:00 - 17:30 policy rate by 25 basis points and more importantly it changed the stance from neutral to accommodative. So that's a very important signal to the market and to the investors that they are more open to rate cuts going forward which means that the RBI is as of now more concerned about growth rather than inflation which is correct because if you look at the various data for inflation right now inflation doesn't seem to be that big a
• 17:30 - 18:00 concern for India food prices are easing global oil prices are easing uh because of tariff because of recession concerns in the US oil prices are down. Uh so inflation is not a problem. It is the other indirect impact of tariff that you know US comes into there is every day you are seeing various investment banks raising their uh probability of recession in the US. So uh till one week back it was 45%, now it is uh sorry 35%,
• 18:00 - 18:30 now it is 45%. So if there is recession in the US all these you know possible advantages that we talked about in furniture or toy that will be lost because if they're in recession demand will be uh lower. So in this situation when growth is subject to various headwinds it is good that the RBI has decided to focus more on growth and what the RBI can do it has only one tool which is the reporate. So it can cut repoor rate and also chain the stance
• 18:30 - 19:00 which gives us a signal that going forward the rate cut cycle is likely to be deeper. If they would not have changed the stance that mean that you know it would have been data dependent. We do not know it's uncertain but the fact that they have changed the stance to accommodative means that going forward the rate cut cycle is likely to be more pronounced. Now um it's time for some audience questions and we have some interesting ones this time. So first Karthik asks in the first term Trump cancels NFA and replaces it with US MCA saying it's more
• 19:00 - 19:30 favorable to the US. Now in his second term he's criticizing the same agreement he put in place. What will make other countries believe that having an agreement with this admission will last long and the next US president will not come in and change the agreements. See these are all speculative one and do not know what's going to happen and you know the only thing certain is that there is uncertainty and that is going to persist for couple of months now we do not know how what you know in in these 90 days what's going to happen what's going to
• 19:30 - 20:00 happen tomorrow what are the kind of deal that are going to be uh struck uh whether those deals will remain in place so these are all very uncertain times and it's good not to uh conjecture upon about those but to wait and watch as to how the situation unfolds. What as India can do is to you know undertake reforms on the domestic trade front provide greater market access undertake uh steps to improve competitiveness so that we provide greater market access and we uh gather
• 20:00 - 20:30 garner greater market share from the US exports. Uh other than that we do not know how these agreements will pan out in the next 90 days and even later. The next question is from Adita. He asks, "Do you think with this tariff increase, if inflation increases in the US, would the Fed go ahead and reduce the interest rates in order to reduce inflation or will they adopt a wait and watch approach?" Because inflation in the US will also have a global impact on other countries as well. Yeah. So if inflation
• 20:30 - 21:00 rises, I would just like to uh say that the Fed would increase rates, not cut rate. Because if inflation rises, the US will Fed will cut uh sorry will increase rates, not cut rate. And uh there was a statement by the US Fed governor Jerom Powell. He said that uh after the announcement of tariffs. He said that tariffs would lead to increase in prices and would lower growth. What uh they need to see going forward is that whether this is a one-off event or is it
• 21:00 - 21:30 going to have a sustained impact on prices. If it is a one-off event, they would like to see through it and uh not increase interest rates. But if it is a sustained increase in prices, if it leads to a spiraling rise in prices, then they would go ahead and tighten interest rates which is going to be counterproductive in a situation where the US is already facing a threat of recession. So it's going to be a complicated policy choice for the US Fed in particular because the US economy is
• 21:30 - 22:00 going to face the threat of higher inflation as well as lower growth. Right. Um the next question is from Sudhhat. He asks will inflation growth moderate if China dumps some USbound export to India? Also now that the 90-day pause on tariff is announced, do we expect a boom for the next 3 months and a bust after 3 months for Indian exporters because they will try to rush exports to frontload inventories of US importers. So yes, this is important you
• 22:00 - 22:30 know uh uh we need to look at Chinese uh macro data you know that is going to be a key monitorable for us going forward and what we've already seen there are these initial signs that China has devalued its currency uh in order to retain market share uh in the US market and on the other side China's PPI which is the producer price index and China's CPI which is the consumer price index both are in the negative territory. So
• 22:30 - 23:00 there is this deflation problem in China which it would now like to export because demand in China is suppressed and that's visible from the CPI data which is negative. So they will try to export deflation to other countries which in other words mean that there is a supply glut. There is this problem of supply glut because they are not able to find adequate markets in the US. So that they will be China will be diverting some of its products to India and other Asian economies and that will be uh
• 23:00 - 23:30 problematic that will further suppress prices but it will be uh counterproductive it will be harmful for our industries uh because they will not be able to increase their capacity utilization because from China cheap imports will be flooding India's markets and other markets as well and not just China you know interestingly we may face a situ situation where even Bangladesh starts dumping their apparel and textile products because they are as of now subject to higher tariffs than India. So
• 23:30 - 24:00 what is going to happen? There is a mix of policy choices that is available that are available for countries. They can lower their prices. They can devalue their currency so that they remain competitive. So there's going to be a lot of complicated policy mix but in general we need to look at Chinese yuan exchange rate and Chinese uh prices to determine our appropriate policy response. that yes there is going to be
• 24:00 - 24:30 this problem of supply glut and therefore lower prices due to the possibility of China dumping products and we've done some preliminary analysis you know to see that there are these various uh uh products like paper like rubber um which are you know likely to be subject to dumping from China because these are those products where China imports to US as well as India so if US closes its doors it will come to India yeah That makes sense. Um, finally,
• 24:30 - 25:00 there's a question by Sankulp who asks, I wonder if global manufacturing has become the new agriculture which cannot survive without subsidies and protection of tariffs. There is evidence of China substantially subsidizing production to remain the world's factory. Even in India, without schemes like PLI, manufacturing ecosystem appears to be a non-starter. Yeah. So we've talked about the uh sectors where uh given the reciprocal tariffs which are now halted India does have a window of opportunity
• 25:00 - 25:30 and there yes for some of the sectors role of schemes like PLI is important to provide incentives to uh manufacturers so that they have a comparative advantage. So yes, PLI but in general beyond PLI also there is a whole mix of uh reforms that are needed you know to address uh various uh things like inverted duty structure uh to be more open to reduce duties on industrial raw material uh so that we become a market
• 25:30 - 26:00 for final uh goods and so on uh introduce labor market reforms factor market reforms. So there's a sle of reform that are waiting to happen so that the manufacturing sector uh gains a greater share of uh the GDP because not we have seen that manufacturing as a share of GDP has remained stagnant. The services sector as a share of GDP has been rising. Uh so yes PLI uh is important but in addition to PLI a whole slew of reforms are needed to boost productivity in manufacturing. On that
• 26:00 - 26:30 note that's all we have for you. Thank you for tuning in to the print. [Music] [Applause] [Music]