China’s Pain, India’s Gain?

JANUS VIEW

US Self-Harm, Chinese Slump Could Lend Support To Sagging Indian Stock Markets

US President Donald Trump has kicked off a global trade war, enforcing the 25% import tariff he had announced on aluminium and steel, and on products made of aluminium and steel, ranging from beer cans to excavator blades and nuts and bolts. 

Canada and the European Union have announced retaliatory tariffs on limited amounts of imports: on computers, sports equipment, and other goods worth $20.8 billion (30 billion Canadian dollars) in Canada’s case, and on liquor, bathrobes, dental floss and other products worth $28 billion in the case of the European Union. Brazil, a major exporter of steel to the US, has not announced any retaliatory tariffs.

What’s India In For?

What Trump has threatened India with are reciprocal tariffs and non-tariff barriers. If these tariffs are levied on broad categories of goods, India would have to prepare for some pain, unless it chooses to lower import duties. 

India would face less of an impact, however, if the reciprocal tariffs are levied on individual products — tariff lines in the jargon of the Harmonised System of Nomenclature, which, in its detailed articulation, can go to eight digits, with the first two digits representing the chapter of the World Customs Organization classification of traded items, the next two, the heading, the two after those, the sub-heading, and the last two, the specific item.

Since there is a huge structural difference between the American and Indian economies, India is unlikely to export to the US many kinds of goods that it imports from the US. India imports computers and parts from the US, but India does not export computers to the US. If India were to levy a steep duty on imported computers, and the US were to reciprocate with a high import duty on computers exported from India, it would matter little. But if the US were to look at electronic equipment in general, India’s hopes to export large numbers of India-made phones to the US would be dashed, if the Indian import duty on electronic goods in general were high.

However, the effect of a trade war involving the US, which accounts for 13% of world imports, would not be limited to bilateral trade. The steel that would have, but for the tariffs, gone to the US, would seek out other markets, depressing steel prices there, and adversely affecting India’s steel industry through such indirect effects. This would apply to aluminium and products, too. Reportedly, the US is preparing to add copper to the tariffed metals.

Since US enterprises are unlikely to see the Trump tariffs as a permanent feature of their trade regime that stays in place after Trump exits the scene, they are unlikely to rush to add fresh capacity in aluminium, steel and other sectors where the US does not have a comparative advantage. So, the immediate effect of the tariffs would be to raise US prices.

Meanwhile, two global developments might, over time, lend support to India’s sagging stock market. China registered negative inflation and Trump’s tariff obsession. 

3.78 lakh

This is the number of domestic passenger vehicles dispatched in India from factories to dealers in February, marking a 1.9% increase. Society of Indian Automobile Manufacturers (SIAM) director general Rajesh Menon told the Business Standard that passenger vehicle sales hit an all-time high for February at 3.78 lakh units. However, two-wheeler dispatches fell 9% to 13.84 lakh units, with motorcycle sales dropping 13%. Three-wheeler sales increased 5%, while e-rickshaw dispatches plunged 51%. Menon expects upcoming festivities to boost demand, ensuring a strong close to FY 2024-25.

— 🛑 Starlink interrupted? India's telecom regulator, the Telecom Regulatory Authority of India (TRAI), may not grant Musk-owned Starlink the 20-year permit it seeks as it has joined hands with Indian telecom giants Reliance Jio and Bharti Airtel. Reuters reported a senior Indian government official as saying TRAI plans to recommend that satellite broadband spectrum allotments be limited to five years to assess initial market adoption. TRAI is in the process of giving recommendations to the central government on time frames and satellite spectrum pricing, among other things, the report said.

— 📜 F&O Reality Check! Retail traders eyeing the high-risk F&O segment may soon need to pass a suitability test, NDTV Profit reported. Market regulator Securities and Exchange Board of India (SEBI) is considering an assessment to ensure investors understand derivative trading risks before participation. Brokerage firms may be tasked with evaluating trader eligibility, with discussions set to take place in SEBI’s Secondary Market Advisory Committee. The move follows SEBI’s prior curbs on F&O volumes, including restrictions on option expiries and higher contract value limits—measures that had already impacted derivative trading and broker revenues.

—⚡Another Ola Crisis! Ola Electric is facing fresh trouble, shutting down Experience Centres in Punjab amid fears of regulatory action over trade certificate violations—an issue that has already led to raids and fines across multiple states. Meanwhile, the Central Consumer Protection Authority (CCPA) is investigating over 10,000 consumer complaints about service and quality issues. As store closures and layoffs mount, Ola is trying to shift focus, announcing a flash Holi sale and claiming it will soon be EBITDA positive. But with rising scrutiny and customer dissatisfaction, the EV giant’s struggles are far from over.

— 🐶DOGE down the drain. The latest US treasury data shows a record high federal spending of $603 billion last month, according to a Financial Times report. This raises doubts about the Musk-led Department of Government Efficiency (DOGE), which promised to root out corruption and unnecessary spending from the US government. Musk and his colleagues suspended and fired thousands of government workers and canceled government grants from several entities, including the Department of Education and USAID. Their next target, according to Musk’s public statements, appears to be the country’s social security system.

HOW INDIA’S ECONOMY WORKS

Is The Tariff War Really Devised By Donald Trump?

The reciprocal tariffs that US president Donald Trump has been levying on other countries have been the talk of the town, or the entire world. Tariffs on goods to the US from Canada and Mexico have already gone into effect, and China's tariffs have doubled.

But the guest in the latest episode of How India’s Economy Works, professor Abhijit Das, doesn't quite agree with the narrative that it’s all Trump’s doing. He believes that the ball was rolled by the Barack Obama administration. 

He said Washington began to systematically sabotage the World Trade Organisation’s (WTO’s) dispute settlement body, closing all remedial recourse to countries for infractions of its commitments to the WTO by the US.

“The reason why WTO is unable to handle this present situation of trade wars gets traced back to the actions of the US. It actually gets traced back not to President Trump, but surprisingly, to President Obama. It was during his time that the US started having reservations or became very reluctant and started opposing nomination of new appellate body members. So, it seems to my mind to have been a well-thought-out strategy of the US,” Das said. 

But what if countries were to willfully defy the tariffs being imposed by the Trump-led US government? Could the WTO take action? “Nothing stops countries from defying the WTO regulations, but it would really be very bad faith and it could be a bit chaotic. And should these countries add to the volatile mix, the upheaval, and the churning which President Trump has unleashed? We don't know,” Das said. 

In this situation, could a free trade agreement with the US help India? 

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas