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  • US-India trade tariffs: Which sectors could get affected?

    ‘Trade wars are good, and easy to win,’ American President Donald Trump said recently.

    Only time will tell whether Trump’s trade tirade will eventually put the United States (US) at an advantage. But there is little doubt that the US has begun a multi-front trade war that is making investors jittery the world over.

    US–India trade imbalance

    Here is a look at how things stack up for the US–India bilateral trade.

    • The US imports more from India than it exports.
    • The US goods trade deficit with India was $22.9 billion in 2017.

    Why India was hurt

    Earlier this year, when Trump asked India to reduce import duties on Harley-Davidson motorcycles, India announced a cut from 75% to 50%. When the US imposed tariffs on steel and aluminium imports this year, India sought exemptions as it exports very limited quantities of these to the US. India’s wish was not granted. How the tariff war can affect the US

    •   1. Last week, the commerce ministry issued a list of 29 items that would attract higher duties from 4 August. The list includes almonds,

          apples, chickpeas, lentils, walnuts, and artemia. India imports most of these items from the US.
    •   2. India also imposed a 120% duty on walnuts, the strongest action so far from India’s side.
    •   3. For the US, India is currently the 15th biggest export market.
    •   4. If the situation gets aggravated, India could further limit US’s entry into the Indian market.

    How it could affect India

    Our research team feels that since India runs a large trade surplus with the US both in terms of goods and services, the ramifications of an all-out trade war will put India at a huge disadvantage.

    Pharmaceutical exports and information technology (IT) services are sitting ducks if the US focuses on the large trade surpluses, the report says.

    Remember, the stock market holds the pharma and IT sectors very close to its heart. Any impact there could see severe repercussions in the equities market.

    What could be the ramifications?

    In the event of an all-out trade war, India has a lot to worry about.

    The IT and pharmaceutical sectors are at a disadvantage if a full-scale trade war unfolds between the US and India, according to research by Kotak Institutional Equities. The two sectors are the darlings of the stock markets.

    Top sectors that could get affected

    Not only IT services and pharma exports, there are a host of other sectors that can feel the pinch. Get the whole list in our report.

    What can minimise the impact

    • A saner approach to world trade by bigger economies including India
    • Dialogues with the US

    What makes a trade war riskier for India?

    India’s high current account deficit makes a trade war with the US risky. It will not be an even battle for India if the trade war does indeed break out.

    India will also find it difficult if the oil-producing countries (OPEC) fail to agree on enhancing oil production between 0.5 and 1 billion barrels per day. The OPEC members agreed on a hike on 22 June but did not specify by how much they will increase production.

    Related: 6 effects of rising crude oil prices on the Indian economy

    Impact on stock markets: Ever since Trump escalated the trade spat with the European Union and China, Indian equities and stocks have fallen by over 1%. The Indian bourses view this unfolding tension as a derailment of the world’s growth.

    The markets are also worried about a possible reduction of US foreign direct investment in India. The ‘Make in India’ manufacturing initiative is likely to be impacted as the free flow of capital may be hindered.

    What next?

    India and US are holding talks to ease trade tensions. It’d be a good idea to keep out for further developments. Meanwhile, you may want to look the stocks our analysts recommend.

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