The Donald Trump administration’s move to impose 50% tariffs on India is ‘draconian’, according to Jefferies' emerging markets strategist
Chris Wood, who believes that the step will lead to a direct hit of $55-60 billion.
According to an ET report, Christopher Wood, Global Head of Equity Strategy at Jefferies, said in his weekly GREED & Fear newsletter: "This amounts to an estimated $55-60 billion blow to the economy, with the most negatively impacted sectors being textiles, footwear, jewellery, and gems – all of which are employment-intensive."
Tariffs on India: Trump’s ‘personal pique’?
Chris Wood is of the view that the penal tariffs on India are a result of Trump’s ‘personal pique’ at being excluded from mediating in the India-Pakistan tensions following their four-day military confrontation in May. India has maintained its position against external mediation in Pakistan relations.
Wood further observed that India's ongoing Russian oil purchases have become a major point, saying: "The draconian tariffs India now faces are the result of an unfortunate series of events, compounded by the fact that Trump has not ended the Ukraine conflict as he had promised."
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No ‘dead economy’? India may surpass US as 2nd largest economy in PPP by 2038 - despite Trump tariffsWood highlighted the unfortunate timing, noting that both nations were reportedly approaching a trade agreement before the Pakistan situation escalated, following the tragic incident in Kashmir's Pahalgam in April, where 26 Indian tourists lost their lives.
Wood highlighted that agricultural imports would be rejected by any Indian administration, considering their severe effects. "Nearly 250 million farmers and related labour derive their incomes from agriculture, with the sector accounting for nearly 40% of India's workforce," he said according to the ET report.
Whilst Trump has imposed tariffs on goods, India's thriving services exports remain untouched, generating $150 billion yearly from IT services. US multinational-established global capability centres in India contribute an additional $60 billion in revenue. "When Trump talks about trade, he seems almost solely focused on trade in goods," Wood noted.
The tariff situation exacerbates existing challenges, with nominal GDP expected to decrease to 8% year-on-year this quarter, significantly lower than the usual 10-12%. Jefferies' India branch predicts nominal GDP growth will reduce from 10% in FY25 to 8.5-9% in FY26, marking the lowest figures outside the Covid period in twenty years.
The government is actively implementing reforms to address these challenges. Following February's budget announcement of income tax reductions, the Modi government plans to introduce a simplified GST structure, reducing the existing four-tier system (5%, 12%, 18%, 28%) to two levels (5% and 18%). Reports indicate these GST modifications might be implemented before end-September.
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‘Deal dependent upon…’: India indicates no compromise on red lines for US trade pact; ‘we cannot overlook some..’Half of the companies listed may survive the 50% tariffs, but these duties present a "potentially massive negative for SMEs" within sectors that generate substantial employment, says Wood.
According to Wood, this situation could negatively impact microfinance and consumer lending institutions, with potential GDP reduction of 1-1.2 percentage points if the tariff situation continues.
The ongoing tariff dispute might result in India strengthening ties with China, as is evident by the planned resumption of direct flights between both nations in September following a five-year gap.
Chinese imports to India currently stand at an annualised $118 billion, constituting 16% of total imports and showing a 13% yearly increase. "India needs China's cheap goods, for example, solar panels," Wood pointed out.
Wood highlighted a significant contradiction: the absence of a clear American foreign policy direction is "not in the national interest since it is surely not in America's interests to push India closer to China". This situation leaves the world's largest democracy balancing economic considerations against diplomatic principles.
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