India faces limited impact from US trade policies, but risks remain: UBI Report

New Delhi [India], March 21 (ANI): India's economy may be shielded from the full effects of US trade tensions due to its trade balance with the US, but the final impact will depend on the contours of a trade deal between the two nations says a research report by Union Bank of India.
As global markets react to uncertainty surrounding tariffs and economic policies under the Trump administration, India's financial system is feeling indirect effects, particularly through currency fluctuations and liquidity conditions.
With the global economy facing rising trade protectionism and recession fears, India's policymakers have focused on maintaining stability and growth.
The RBI and government have taken proactive steps to navigate these uncertainties, ensuring India's economic momentum despite external challenges. However, much will depend on how trade negotiations between India and the US unfold in the coming months.
The Indian Rupee has weakened by about 2 per cent this year, even as the US dollar index remains weak. The Reserve Bank of India (RBI) has been actively working to combat indirect impacts on liquidity and financial stability.
While a slowing global economy poses risks, India may partially offset the impact through a weaker currency and lower oil prices.
Another study suggests that the country imposing tariffs may experience greater economic strain than the targeted nation. Higher tariffs on intermediate goods increase production costs, which producers may partially absorb, leading to reduced profit margins.
Key exports to the US play a crucial role in India's economy. Industries such as automobiles, gems and jewellery, steel, aluminium, pharmaceuticals, and textiles are heavily dependent on US markets.
Any changes in trade policies, including tariffs or restrictions, could significantly impact these sectors, affecting both exports and employment.
US protectionist policies may trigger retaliatory tariffs or import substitution measures from India. This is particularly relevant for industries such as automobiles, steel, solar energy, and food products.
In response to US tariffs, India may impose countermeasures that could disrupt trade flows and impact businesses operating in these sectors.
Commodity-linked sectors face unique challenges and opportunities. While lower oil prices could benefit energy-dependent industries by reducing costs, metal producers may struggle due to global price fluctuations.
Trade tensions and tariffs could further influence commodity prices, creating uncertainties for industries reliant on raw material imports or exports.
Markets and investors remain on edge as President Trump's shifting stance on trade policies creates economic uncertainty.
Concerns over a potential US recession have resurfaced, with weaker consumer spending, declining business confidence, and unpredictable policy decisions affecting growth projections.
Early 2025 saw downward revisions in US growth forecasts due to rising imports ahead of expected tariffs, widening the trade deficit, and slowing GDP growth.
Amid economic uncertainty, inflation expectations in the US have risen. The five-year breakeven inflation rate climbed from 1.9 per cent in September 2024 to 2.6 per cent in February 2025.
Trump's inconsistent approach to trade tariffs has created instability in the global markets. While trade tariffs were initially aimed at strengthening US manufacturing, protecting jobs, and raising tax revenues, the resulting uncertainty has instead led to lower growth forecasts, higher inflation and a weaker US dollar. (ANI)