India's Economy Faces Bumpy Road in Face of Steep Trump Tariff

Hindustan Times

3 days ago

Trump said Indian imports would be hit with an extra 25% levy as punishment for buying Russian oil, on top of a 25% tariff that had been previously announced. India's growth outlook has been weighed by President Trump's punitive tariff on the South Asian economy but there's still hope negotiations will ease the impact.
Trump on Wednesday said Indian imports would be hit with an extra 25% levy as punishment for buying Russian oil, on top of a 25% tariff that had been previously announced.
Indian exports to the U.S. now face a hefty 50% tariff, jolting longstanding efforts by both Washington and New Delhi to deepen ties in a bid to counter China's growing influence in the Indo-Pacific. The new tariffs will go into effect 21 days after Trump signed the order Wednesday.
India condemned Trump's new tariffs over its purchases of Russian oil as 'unfair, unjustified and unreasonable.'
Market reaction to the Trump announcement has been relatively muted. The Indian rupee weakened slightly against the dollar, while the benchmark Sensex stock index slipped 0.35%.
Analysts think the tariff increase could intensify risks for India's growth outlook as the export sector's competitive edge as a regional manufacturing hub would be undermined.
At the new rate, 'India's tariffs would actually be higher than not just its export competitors such as Vietnam, but also China's tariff rates across a whole range of products,' Michael Wan, senior currency analyst at MUFG, said in a note.
'If effective, the steep 50% tariff would be similar to a trade embargo, and will lead to a sudden stop in affected export products,' Nomura research analysts said in a note.
When the initial 25% tariff on Indian imports was announced, Goldman Sachs analysts estimated that would shave about 0.3 percentage point off India's growth this year. They now think this hit could double if India is hammered with a 50% rate.
However, Goldman Sachs said in a report that no changes to its 2025 growth forecast of 6.5% are warranted at the moment, given that there is a three-week window for India to negotiate with the U.S. before the increased tariffs take effect.
Aastha Gudwani, economist at Barclays, said the heightened tariffs could be a 'continuation of pressure tactics, and final U.S. tariffs on India will settle in lower than the announced 50% rate.'
The incremental tariff doesn't target India's trade deficit with the U.S., but is instead aimed at the 'threat' of Russia, Gudwani said in a note.
MUFG's Wan warned that there could be broader economic implications for global oil markets.
'It is unclear how much space there is for negotiations between the U.S. and India in reality, and whether other countries which also buy Russia oil such as China would also have tariffs imposed on them,' Wan said.
'If India were forced to find alternative barrels of oil, the indirect spillover impact to global oil prices should not be underestimated,' Wan said.
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