Donald Trump's 25 percent tariffs on Canada and Mexico and a cumulative 20 percent tariff on China took effect on Tuesday. Trump has also said reciprocal tariffs will start on April 2, escalating trade tensions and dragging global financial markets. China retaliated to US tariffs, announcing 10-15 percent hikes to import levies covering $21 billion worth of US agricultural and food products.
Higher tariffs, in addition to their potential adverse impact on global growth, could spur inflation in the US, leading to higher interest rates for longer and hurting flows into emerging markets such as India. Indian IT companies, which receive a substantial portion of their revenue from the US, were also hit by price pressures in the US. The Nifty IT index is down 14 percent year-to-date (YTD) and has hit an eight-month low, unsettling market sentiment.
D-Street experts believe that the uncertainty unleashed by Trump is aggravating global trade. The 25 percent tariff on Canada and Mexico and the 20 percent tariff on China (with the additional 10 percent imposed now) kicking in the threats are turning into action. “The retaliation to these Trump tariffs is yet to be known. Certainly, there will be responses,” said V K Vijayakumar of Geojit Financial Services.
If Trump's tariff policy continues like this and soon starts impacting other countries, it will be bad for global trade and the global economy and India will not be spared, he said.
In the near term, there are no chances of a rebound in the Indian market, even though valuations are fair. Investors should remain cautious and wait to see how the scenario unfolds," Vijayakumar said.
“One factor will tame Trump, and that is the market reaction. Even the mighty Trump cannot influence markets. Tariffs will soon raise inflation in the US, and the Fed can turn hawkish. The US stock market, which is now priced to perfection, can suffer a severe correction, even a crash. This outcome, which Trump abhors, can tame him and bring about some sanity and balance in his policies. We don’t know when this will happen,” Vijayakumar added.
Nigel Green, CEO of deVere Group, believes tariffs are a pivotal shift in global economic policy with immediate and potentially lasting consequences. “Investors who recognise the opportunity now--who take decisive action rather than reacting after the facts--will be the ones who are likely to stand to benefit most in this new era of trade and market recalibration," said Green.
Weak global cues continue to weigh on sentiment, but selective buying limits the downside. “We maintain a cautious outlook on the Nifty, with key support at the 21,800-22,000 zone. Among sectors, banking, financials, and metals exhibit relative strength, while others present a mixed trend. Traders should align their positions accordingly while managing risk with prudent position sizing,” said Ajit Mishra of Religare Broking Ltd.
(By arrangement with livemint.com)
