Tariffs a catalyst for world trade to unite against the US: Ambareesh Baliga

The silver lining amid all this is the fact that the reciprocal tariffs on India are lower than the other economies like China at 34 per cent and Vietnam at 46 per cent, Baliga said

The reciprocal tariff imposition on India was widely expected, and the 27 per cent reciprocal tariff imposed by the US president Donald Trump is not too far from the 25 per cent that the markets were expecting a few days ago. So to that extent, the announcement has been on expected lines.

 

That said, there was a hint of expectation that India could get away with milder tariffs and a few more concessions, but that did not happen and came as a disappointment.

 

The silver lining amid all this is the fact that the reciprocal tariffs on India are lower than the other manufacturing economies like China at 34 per cent, Vietnam at 46 per cent, and Cambodia at 49 per cent. Even within South East Asia, India stands out. Pharma exports are also not covered (under reciprocal tariffs). The auto sector, too, faces tariffs but the impact will not be very harsh.

 

 

From a stock market perspective, Jaguar Land Rover (JLR) will get impacted, which in turn can impact the Tata Motors’ stock. JLR exports from Slovakia and the United Kingdom (UK). What could happen in the longer term that they move production away from these locations. Till then, the impact will remain.

 

India is a major exporter of auto ancillaries, which will impact sentiment. So, either these companies set up plants in the US (like Samvardhana Motherson that has six plants in the US), or go to geographies that have relatively lower tariffs. UAE tariffs are just 10 per cent. So, what stops these companies from shifting base to the UAE where they do some value addition and then export to the US? However, a revision of tariffs still remains a risk.

 

Overall, Donald Trump’s tariffs will impact the world trade order. This will also bring countries together to trade against the US, and this will also push world trade against the US. One needs a catalyst to bind others together, and trade tariffs will act as that catalyst for world trade to unite against the US. We could actually see baby steps being taken for trade against the US dollar (USD). At the end of the day, this will lead to inflation in the US, and tax tweaks by Donald Trump will not be enough to curb the problem.

 

The markets will be at a new normal going ahead. They are likely to see a knee-jerk reaction and should recover on some buying support at lower levels. But, they are likely to remain volatile in the weeks ahead before stability returns.    Ambareesh Baliga is an independent market analyst. Views are personal.

  (As told to Puneet Wadhwa)