“This comes down to an estimated $ 55-60 billion blow to the economy, with the most negative affected sectors with textiles, footwear, jewelry and precious stones that are all employment intensive,” said Christopher Wood, worldwide head of the Praise Strategy at Jefferies, in his weekly newsletter rate.
Wood argued that the steep rates arise from the ‘personal pique’ of Trump because they were denied a role in solving the tensions of India-Pakistan after their four-day military conflict in May. India has consistently drawn a red line against intervention of third parties in the relations of Pakistan, despite the economic costs of taking Trump of “one of his possibilities to win the Nobel Prize for Peace.”
“The draconian rates that India now provides are the result of an unfortunate series of events, exacerbated by the fact that Trump did not terminate the conflict in Ukraine as he had promised,” Wood added, and noted that the persistent Russian oil purchases of India have again become a short point.
The timing, he said, was particularly hard, because the two countries reportedly had been close to completing a trade agreement before the conflict in Pakistan broke out, after killing 26 Indian tourists in Kashmir’s Pahalgam in April.
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Wood emphasized that no Indian government would open agriculture for import, given the devastating impact on the poor. “Nearly 250 million farmers and related labor are their income from agriculture, with the sector good for almost 40% of India staff,” he said.
Despite the rate attack on goods, Trump has not yet focused on the export of India’s flourishing services, which generates $ 150 billion annually in IT services. Global Capability Centers, largely set up by American multinationals and based in India, add another $ 60 billion in income. “When Trump talks about trade, he seems almost exclusively focused on the trade in goods,” Wood noted.
The tariff threats increase existing growth problems, whereby the nominal GDP is expected to slow this quarter to only 8% on an annual basis, well below the recent trend of 10-12%. The India office of Jefferies predicts the nominal GDP growth that is relaxed from 10% in FY25 to 8.5-9% in FY26 -the lowest in two decades outside the Covid.
The government is concerned about preventing the impact due to accelerated reforms. In addition to income tax reductions announced in the budget in February, Prime Minister Narendra Modi has unveiled a long-planned GST overview, which reduces the four current tax tires (5%, 12%, 18%, 28%) to only two (5%and 18%). According to reports, the GST reforms could finally be rolled out before September.
Although 50% rates do not immediately threat most listed companies, they form a “potentially mass negative for SMEs” in employment -intensive sectors. Wood warned that this could harm the microfinance and consumer financing companies, whereby the GDP may be shaved with 1-1.2 percentage points if the rates persist.
The tariff war also threatens to push India closer to China, with direct flights between the two countries that will resume in September after five years. The import from China was already an annual $ 118 billion-16% of the total of India and rising 13% on an annual basis. “India needs China’s cheap goods, for example solar panels,” Wood noted.
The irony, he concluded, is Stark: the conceptual vacuum of America in foreign policy is “not in the national interest, because it is certainly not in the interests of America to push India closer to China” – because the largest democracy in the world is confronted with an economic settlement about diplomatic principles.
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