The United States' recent action of imposing steep tariffs on Indian goods is likely to boomerang into its own economy, fueling inflation and slowing growth, State Bank of India (SBI) warned in a new report.
The report indicates that the US economy can lose 40–50 basis points of GDP as a result of the new tariffs, along with struggling with an increase in input costs. "We believe that U.S. tariffs are likely to impact U.S. GDP by 40-50 bps as well as more elevated input cost inflation," the report pointed out.
SBI also pointed out that inflationary pressures are already beginning to re-emerge in the US, a development which is attributed both to the tariff pass-through effect and a softening dollar. Import-intensive industries like consumer durables, autos, and electronics are found to be among the worst impacted.
US inflation is now projected to stay above the Federal Reserve's 2% target at least through to 2026, as supply-side pressures from tariffs and currency fluctuations remain in the picture.
The United States has imposed additional duties on almost $45 billion of imports from India. Although labour-intensive industries such as textiles, gem and jewellers might bear the brunt, pharmaceuticals, steel, and phone exports are likely to be impacted only marginally through tariff exemptions, current duty structures, and consistent US demand. The report did, however, highlight one potential negative: if all of India's $45 billion in US exports were subjected to the new 50% tariff, India's trade surplus with America could turn into a deficit. Still, we hope trade talks will revive confidence and enhance exports to the U.S.," it stated.
The gap in tariff levels was also emphasized. Indian exports now attract a duty of 50%, in contrast to Chinese goods at 30%, Vietnamese at 20%, Indonesian at 19%, and Japanese shipments at 15%.
The US remains India's largest textiles purchaser, an area where India has increased presence in the last half-decade as China's market share declined, solidifying India's place in the supply chain. The US market is also the largest outlet for India's gems and jewelry industry, which accounts for almost a third of the industry's $28.5 billion yearly exports.
But with tariffs on the items doubled—to 50% from 25%—SBI cautioned that exporters are gearing for massive disrutions to come.
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