Trump’s Tariffs Likely to Impact US Economy More Than India’s: SBI Research

The 25 per cent import tariff on Indian imports declared by US President Donald Trump is expected to be more harmful to the American economy than India's, says a research note published by SBI Research on Thursday.

The new trade curbs, effective from August 7, are being imposed along with sanctions on Russian oil and defense system purchases.

Nevertheless, SBI Research has termed the action as a "bad business decision," stating that its economic implications would fall more on the United States than on India.

The report predicts a variety of economic impacts on the US, including a retarding of GDP growth, an increase in inflation, and dollar weakness. It emphasized that inflationary pressures in the US are already building, partly driven by previous tariffs and the weakening dollar. Inflation is expected to stay above the Federal Reserve's 2 per cent target at least until 2026.

Among the most immediate impacts, the analysis finds, will be the monetary blow to American families. US families, on average, might incur an additional cost of about $2,400 in the short term as a result of increased prices. Low-income families might stand to lose as much as $1,300, and high-income families up to $5,000. While the latter group might be more likely to withstand the damage, the report indicates the broad-based burden will be felt widely.

India, on its part, is likely to ride out the consequences better because of its growing diversified export markets. Although the United States continues to be India's largest export market—taking some 20 per cent of total exports—the number one trade partner in its top ten accounts for just 53 per cent of all shipments. This diversification provides India with an insurance against possible revenue erosions from the US market.

Industries like pharmaceuticals, electronics, and gems and jewellery are likely to be the most severely affected since together they account for almost half of India's exports to the US. These items had otherwise subjected to widely differing tariff levels, ranging from as low as zero per cent previously. With the blanket application of a 25 per cent tariff, these sectors now have significantly higher entry barriers.

The pharma sector is particularly regarded as very susceptible. India alone now supplies approximately 47 per cent of all the medicines utilized in the US, and approximately 40 per cent of India's pharmaceutical exports are destined for America. The report observes that if the US intends to shift drug manufacturing or API (active pharmaceutical ingredient) production to other nations, developing necessary infrastructure would take three to five years, and in that time, the US can suffer shortages of supply and increased costs of drugs.

Indian pharma players may experience a 2 to 8 per cent decline in profits by FY26 if these trade actions continue, particularly because large companies generate almost half of their revenues in the US.

In spite of the impending trade restrictions, India's export performance to America has not weakened. The bilateral trade surplus, at $11 billion in FY13, is poised to reach $43 billion by FY25. In the first quarter of FY25 alone, the surplus was $12.7 billion, driven by a 22.3 per cent increase in Indian exports to America, well ahead of 11.7 per cent growth in imports from America.

This increase in early exports might come as some relief to Indian companies, giving them time to make the transition to the new tariff regime.