U.S. President Donald Trump announced a 26% tariff on Indian imports, citing the country’s high tariffs on American goods. Speaking from the White House Rose Garden, he referred to the day as “Liberation Day” and stated, “They (India) are charging us 52%, and we have charged almost nothing for years and decades.”
This decision is part of a broader effort to address trade imbalances, with the U.S. set to impose a 10% baseline tariff on all imports starting April 5. Higher tariffs are also being applied to specific countries, including a 34% duty on Chinese imports and 46% on Vietnamese goods.
The announcement triggered significant market reactions. The Indian rupee weakened in the non-deliverable forward (NDF) market, with the dollar/rupee one-month NDF quoted at 85.86-85.90, suggesting a potential 10-15 paisa decline when onshore trading begins. Additionally, the Sensex plummeted by 805 points as investors responded to the news.
In response, India has shown a willingness to offer tariff reductions on over half of U.S. imports, valued at $23 billion, marking one of its largest concessions in recent years.
Economists and analysts warn that these tariffs could lead to higher consumer prices, disruptions in global supply chains, and an escalation of trade tensions.
Provoiding the views by Arindam Mandal, Head of Global Equities at Marcellus Investment Managers said
The announced tariffs are more severe than anticipated. While the market had expected the effective tariff rate to be in the high teens, the actual rates are now projected to be in the mid-to-high 20% range – possibly the highest we have seen in a century, a significant increase from the previous 2.5–5% levels. There are some temporary exemptions—such as for pharmaceuticals, semiconductors, and energy—but their impact may be limited. For instance, in the case of semiconductors, the supply chains are deeply interconnected with China and Taiwan, raising questions about how much the exemption can truly mitigate disruptions.
In the short term, these tariffs function as a tax on consumers, contributing to inflationary pressures. However, weaker demand might temper inflation and prevent interest rates from rising too sharply. Year-to-date (YTD), markets have been partially pricing in these risks, as evidenced by the outperformance of defensive sectors. This trend is likely to persist until potential earnings downgrades from these trade actions are fully reflected in the valuations of riskier assets and sectors.
