India remains ‘insulated’ from a potential downturn in US markets, says Geojit Fin Services’ Vinod Nair | Stock Market News

The U.S. tariff disruption to the world has intensified. Following the imposition of an additional 10% tariff on Chinese imports in February, the rate was further increased by another 10% in March. Consequently, the average U.S. tariff on Chinese goods could reach 39%, marking a steady rise over the past eight years. Additionally, a 25% tariff on all steel and aluminium imports, regardless of the country, will be implemented from March 12, 2025. 

In retaliation, China has imposed reciprocal tariffs of 10% to 15% on U.S. food product imports. To minimize the impact of rising tariffs, Chinese manufacturers have increasingly adopted tariff engineering strategies. This includes relocating the final assembly of their products to other Southeast Asian countries like Vietnam and Malayasia, as well as to North American nations like Mexico & Canada, with whom the United States has had relatively free trade relations. Tariff engineering, including relocation, designing, seizing, and characteristic changes, is expected to intensify further. In response, President Trump has sought to tighten trade policies by implementing tariffs on Mexico and Canada while considering reciprocal duties to address trade imbalances. 

Trump’s tariffs on Chinese imports are being enforced firmly, but implementation regarding Mexico and Canada remains uncertain. Initially scheduled for February, which was announcement in January, was postponed to March. On March 4, the U.S. declared a 25% tariff on imports from Mexico and Canada, but by March 6, many of these tariffs were suspended, with only selective duties applied to specific some item.

In response, Canada introduced countermeasures, and the province of Ontario threatened to impose a 25% surcharge on electricity exports to the U.S. Although this measure was put on hold, and Trump retaliated by threatening a 50% tariff on Canadian steel and aluminium. As trade tensions persist, the possibility of country-specific reciprocal tariffs looms. In a bid to avoid such repercussions, India is working towards a Free Trade Agreement (FTA) with the U.S. to enhance bilateral trade relations. 

The U.S.’s aggressive trade tariffs, particularly against China, along with strict immigration policies and uncertainty over future economic measures, are creating instability in both the economy and the stock market. Concerns are mounting that these actions could ultimately result in greater economic losses than gains for the U.S. One major consequence is the persistence of elevated prices, exacerbating the country’s ongoing battle with stagflation. Inflation has remained above the long-term average since 2020.

Meanwhile, the ECB has taken a more proactive approach, having already implemented six rate cuts—bringing the bank rate down from 4.5% to 2.5%—with further reductions anticipated. In contrast, the U.S. Fed remains stuck at 4.5%, with lack of intension to reduce rates in the future.

The U.S. economy is likely to be more adversely affected by these policies compared to the rest of the world, unless measures such as tax cuts or reinvesting tariff revenues into the economy are introduced. Moreover, recent economic data signals a slowdown. The unemployment rate has increased to 4.1%, core CPI continues to be above the long-term threshold at 3.3%, and Michigan Consumer Sentiment has collapsed in February to 64.7 from 74 in December. 

The uncertainty surrounding U.S. state policy, coupled with weak domestic economic data, is now impacting both the economy and the stock market. DXY has corrected to 103.5 from above 108 a month back; 110 is the high. A sheer indication of the weakness in the dollar economy. At the same time, the stock markets in Europe and China are performing well in the last one month, led by more supportive government measures. Like steps to increase defence spending in Europe, more liquidity ECB measures, China govt. stimulus, excitement in IT stocks over AI (DeepSeek) development, and extending friendly hands to the private players to boost the economy out of the slow clutches. 

As a result, the US stock market, which is the best performer and the last course of resort, is weakening in the last one month. S&P and Nasdaq corrected by 10% & 14% from the recent high. This situation is expected to stay tight unless clarity emerges about tariff policy, international policies, rate cuts, and economic growth. The one-year forward P/E valuation of the US has come down from 24x to 21x, but it is still on the higher side. Investor sentiment has been rattled by concerns that Trump’s trade wars could trigger a recession.

Global investors’ growing apprehension is that a prolonged downturn in the U.S. market could have a ripple effect on the entire world markets, potentially slowing the global economy. And the standoff involving the two largest economies, the US & China, heightened the risks of slowing down the world economy. Fortunately, India remains largely insulated from these disruptions with low goods trade and high services exports. However, with goods exports expected to rise in the future, India stands to gain additional growth, and the government is working to finalize the FTA deal to support this. 

The author, Vinod Nair is Head of Research at Geojit Financial Services.

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