Finsphere

Dear Clients and Stakeholders,

Indian equity markets enjoyed some much-needed relief in March, snapping a five month sell off which started last October as Nifty rebounded 6.3%. However, this optimism was short-lived. President Trump’s announcement of sweeping new tariffs reignited global trade tensions, sending Nifty tumbling 2.61% in the first week of April. With corporate earnings for Q4FY25 around the corner and fears of a full-blown trade war setting in, investor sentiment has once again turned cautious.

President Trump, on April 3^rd, announced a baseline 10% “reciprocal tariff” on virtually all of US’s trading partners, effective from April 5^th, 2025, along with higher country-specific tariffs ranging from 10% to as high as 54%, set to begin April 9. Notably, previously tariffed items like steel, aluminum, and auto components (already subject to 25% duties) were excluded from such reciprocal tariffs. In addition, imports from Mexico and Canada—those not aligned with the local sourcing requirements under the United States-Mexico-Canada Agreement (USMCA)—were to face a 25% tariff, with Canadian energy imports specifically attracting a 10% levy. Goods that complied with USMCA norms, however, did not attract any levy. Pharmaceutical imports which have been spared for the time being are expected to be brought under the ambit of tariffs soon with President Trump hinting at tariffs “at unprecedented levels”.

The global response to these tariffs was swift. Canada and China took the retaliation route which saw Canada impose a 25% tariff on non-USMCA goods, and China announced an additional 34% retaliatory tariff on US goods imported into their country while countries such as Vietnam and India are aiming for a more amicable resolution by agreeing to reduce tariffs on US goods. The situation further escalated as President Trump threatened further additional tariffs on China at 50% which may take tariffs on Chinese goods to staggering 104%. Meanwhile, the EU has indicated that it would unveil its own countermeasures by mid-April.

Global equity indices were thrown into disarray following the announcement of US tariffs which effectively signaled the start of a global trade war and a potential overhaul of global supply chains. Investor sentiment deteriorated rapidly amid fears of a global economic slowdown. Major equity indices across the world plummeted. The US markets saw broad-based declines during the first week of April as S&P 500 dropped 7.86%, Dow plummeted 9.08%, and the tech-heavy NASDAQ fell almost 10%. Europe and Asia didn’t escape the fallout either: the FTSE lost nearly 7%, Germany’s DAX and France’s CAC were down 8%, and Japan’s Nikkei dropped 9%.

Although at first reading the tariff of 26% on India sets off alarm bells, a deeper analysis suggests that impact of these tariffs on India appears to be far more nuanced. As per data available with United States International Trade Commission, India contributed to USD 87.2 billion of US’s imports—a mere 2.7% of the total of USD 3.3 trillion worth of goods imported by the US in 2024. In contrast, China (at USD 582.4 billion, ~13% share) and Vietnam (at USD 149.6 billion, ~4% share) were subjected to 54% and 46% tariffs respectively. Other key Asian manufacturing hubs like Japan and Bangladesh face levies of 24% and 37% respectively. As things stand, a quick resolution by way of a Bilateral Trade Agreement would further strengthen India’s position in a rapidly evolving global supply chain.