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How Trump’s Tariffs Affect Indian Rupee, Markets, Imports And Exports | Explained


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Trump tariffs could impact IT and pharmaceuticals, but many exporters say a trade war with China, Canada and Mexico would create an opportunity for more Indian goods to enter the US market

China is the largest contributor to the US trade deficit with an overall share of 30%. India's share is only 3.2%. (AP Photo/File)

China is the largest contributor to the US trade deficit with an overall share of 30%. India’s share is only 3.2%. (AP Photo/File)

The trade war that President Donald Trump has started with Canada, Mexico and China, and soon with the European Union, is not only affecting just these countries, but also India, which has so far not seen any imposition of tariffs on its goods.

The Indian rupee has seen record lows in the past few days, since Trump slapped tariffs on imports from its three biggest trading partners – Canada, China and Mexico – rattling global financial markets.

The rupee declined to 87.28 per US dollar on January 3 before closing at 87.1850, down by nearly 0.7%, its biggest single-day percentage loss since January 13.

The rupee continued to face pressure from foreign fund outflows and rising dollar demand from oil importers, amid weak appetite in global markets.

Let us understand the impact of tariffs on the Indian markets, forex, imports and exports.

What Happens When Rupee Falls?

Since India buys 87% of its crude oil using dollars, as the dollar gets stronger, Indian spending on oil imports will increase. In financial year 2024, India imported $134 billion worth of oil.

And since oil is the backbone for fuel products such as petrol, plastics, and fertilisers, those higher costs have a ripple effect on the economy.

Besides, trade deficit also increases as imports outpace exports with a weaker rupee.

For business, a weak rupee means financial trouble. Companies that borrowed in dollars now owe more in rupees. If a business took out a loan when $1 was Rs 83, they now need Rs 87 to pay back the same amount. India’s external debt hit $682 billion in June 2024, up by $13 billion in just three months.

Higher import costs also lead to inflation as eats into household budgets.

What Is Happening To Forex?

Foreign institutional investors (FIIs) offloaded equities worth Rs 1,327.09 crore in the capital markets on a net basis on Saturday, according to exchange data.

Meanwhile, India’s forex reserves increased $5.574 billion to $629.557 billion in the week ended January 24, the Reserve Bank said on Friday. In the previous reporting week, the overall kitty had dropped from $1.888 billion to $623.983 billion.

The reserves were on a declining trend for the last few weeks, and the drop has been attributed to revaluation, along with forex market interventions by the Reserve Bank of India (RBI) to help reduce volatilities in the rupee.

Meanwhile, Finance Secretary Tuhin Kanta Pandey has said there is no concern over the rupee value, and the RBI is managing the volatility of the local currency.

“There is no concern about the value of the rupee. The volatility in the rupee is being managed by the RBI,” Pandey said. He said the rupee is a “free float” and no control or fixed rate is applicable to the currency.

The RBI is expected to announce its monetary policy this week. The government in Union Budget 2025 has already lowered its fiscal deficit estimate to 4.4% from 4.8% of the GDP, hinting at improved fiscal prudence.

Challenges For India Amidst Tariff War

Impact On IT, Pharma: Trump’s tariffs could severely impact Indian industries like the Information Technology and pharmaceuticals. A rise in tariffs could prevent Indian goods from critical markets, especially automobiles and pharmaceuticals. In response to previous US tariffs, India has imposed counter-tariffs, suggesting a similar response if new duties are implemented.

Trump Demands: Trump has urged India to buy more of security equipment, and stressed the need for a fairer trade relationship. To this, India could make some changes in the trade deal under the Free Trade Agreement (FTA). Though no tariff cuts are planned under the Indo-Pacific Economic Framework (IPEF).

India has already begun lowering tariffs to favour US exports in a bid to avoid Trump’s tariffs. Duties on items primarily exported by the US, such as motorcycles with an engine capacity below 1,600cc, ground installations for satellites, and synthetic flavouring essences, among others, were slashed in the Union Budget 2025-26.

Can Tariffs Benefit India?

The other side of the tariff story is that it could benefit India. Exporters believe that the current 10% tariffs imposed on Chinese goods would create an opportunity for more Indian goods to enter the US market.

According to an analysis by Oxford Economics, India was the fourth-largest beneficiary of the trade diversions that occurred between 2017-2023 after Trump launched a tariff war with China in his first term.

“There is a growing concern among US companies that tariffs on China and many other countries may also increase, prompting them to move away from China. One exporter, who has factories in both India and China, began receiving larger orders in India due to concerns over supply chain risks in China. This is despite the fact that India is less competitive than China,” Ajay Sahai, Director General of the Federation of Indian Export Organisations (FIEO), The Indian Express.

The FIEO found that India could add $25 billion in additional exports to the US as a result of the tariff war with China, Canada and Mexico. India could export electronics and electricals, automotive parts and components, organic chemicals, apparel and textiles, footwear, furniture and home decor and toys.

In December, NITI Aayog CEO BVR Subrahmanyam said Trump imposing high tariffs on trading partners would lead to “huge opportunities” for India. “Whatever Trump has announced so far… I think there are opportunities for India. We are a man at first slip, the ball is coming in our direction. Are we going to hold it or drop the catch, it’s for us to see…and I think, you will see some steps in next few months,” he said: “The question is if we actually prepare ourselves, it can lead to a massive boom… because there is going to be trade diversion”.

A Look At India-US Trade

In 2023-24, India exported goods worth $77.5 billion to the US, more than the total exports to its next three largest markets combined. However, India’s imports from the US are smaller, representing just over 6% of US imports, leading to a rising trade deficit for the US.

According to the Research and Information System (RIS), China is the largest contributor to the US trade deficit with an overall share of 30%. Mexico and Canada hold the second and third positions with shares of 19% and 14.5%, respectively. In 2023, China had a trade surplus of $317 billion with the US, while Mexico and Canada had surpluses of $200 billion and $153 billion, respectively. While India contributes only 3.2% to America’s overall trade deficit and is the ninth-highest contributor.

India’s imports from the US include petroleum crude, pearls, precious stones, electrical machinery, aircraft parts, and military equipment. Exports to the US primarily consist of petroleum products, pharmaceuticals, telecom instruments, and electronic components.

News explainers How Trump’s Tariffs Affect Indian Rupee, Markets, Imports And Exports | Explained



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