New Delhi: With US President Donald announcing 25 per cent tariff on the goods imported from India with effect from August 1, 2205, Friday, SBI Research has released a report mentioning that the economic implications for the current trade stalemate between the two countries will hit the US more as compared to India with a lower GDP and higher inflation and a weaker $. The report also mentioned that the efforts of BRICS members to strengthen multilateralism and reforming global governance could have led to the tariff imposition.
Efforts to rejuvenate BRICS partnership could have sparked stalemate
Across the border, a rogue nation with broken economy, has taken a mistaken leap of faith by launching a digital currency pilot programme and showing the intent towards development of legislation for virtual assets through creating a regulatory and legal framework to govern digital currencies in banking, trade settlement, Fx and gold …The mess this neighbor of ours has put itself into on all counts makes the evolving situation simultaneously gravely ridiculous and comically pathetic.
With economic integration intended through the National Crypto Council, whose CEO was appointed this May as the PM’s special assistant on blockchain and cryptocurrency with Minister of State status—this troubled neighbor looks set to venture into an area where the angel would fear to trade… Worse, its policy makers and Central Bank could have read the writing on the wall which is evident through blocking the CBDC developments in the US.
One is just reminded of the infamous Silkroad episode (the illegal dark web marketplace peddling drugs trafficking, cyber crimes, money laundering and illegal arms trade through crypto coins), or El Salvador’s costly experiments with adopting the Bitcoin as a legal tender in 2021, making a silent retreat by 2024 despite much of its populace toying with digital wallets in early period.
It is rather not difficult to see that the stubborn yet strategically superb diplomacy of India could be rattling the feathers as
Operation Sindoor, along with outreach to various jurisdictions post the tactical strike and frontloading efforts for a spirited BRICS partnership across trade and commerce augurs well for a credible alternative to the world at large, and the Global South in particular. This strategic positioning of brand India, the economic juggernaut and military prowess now ringing alarm bells across DM, could be one of the reasons for the House of Cards being built which can temporarily checkmate our journey, but would do little to stifle our spirits, or the can-do mentality.
To Read Full Text of SBI Research: Click Here
US Inflationary pressures: Uptick has began
The US is beginning to show signs of renewed inflationary pressure, driven by the pass-through effects of recent tariffs and a weaker dollar—particularly in import-sensitive sectors such as electronics, autos, and consumer durables.
US inflation is expected to stay above the 2 percent target through 2026, driven by supply-side effects of tariffs and exchange rate movements
Boomerang Effect of US Tariff on Inflation
Tariffs act as a supply shock, pushing up intermediate goods costs and broadening into consumer prices as they pass through the value chain. We estimate the inflationary effect tariffs imposed by the USA on its imports. Specifically, we quantify how much these tariffs will contribute to U.S CPI in both the short run (before substitution and supply chain adjustment) and the long run (after markets partially adjust to new trade costs).
The total US imports from the rest of the world stood at approximately $3,266 billion. The newly announced average tariff rate is assumed to be 20% across all imports. Thus, the tariff shock applies to nearly the entire import volume.
To translate the tariff shock into its potential effect on CPI inflation, we apply a stylized pass-through framework commonly used in international macroeconomics… The change in prices is denoted by the following equation.
We approximate the CPI weight of import-sensitive goods (ω) at 20%, based on Bureau of Labor Statistics (BLS) CPI weightage. This estimate includes imports such as apparel, footwear, electronics.
This suggests that in the absence of supply chain re-optimization or domestic substitution, the tariffs could push US inflation up by 2.4%. In the long run, when economic actors have had time to adjust to the new trade regime, the tariffs are expected to add 1.2% to baseline inflation
This stylized estimation shows that even without including general equilibrium spillovers, the direct mechanical impact of tariffs on CPI inflation is nontrivial
US tariffs are projected to cost the average U.S. household about $2,400 in the short term, mainly due to higher prices from tariff-driven inflation. Low-income families may lose around $1,300 nearly triple the relative burden compared to high earners while high-income households could face losses of up to $5,000, though with less impact on their overall financial stability
The economic implications for India
Though US is India’s top exporter (share ~20% in FY25), yet India has diversified its export destinations, and the top 10 countries only accounted for ~53% of total exports
Vietnam: The US and Vietnam struck a trade agreement that sets 20% tariffs on exports however any transshipments from third countries would face a 40% levy. Since 2018, Vietnam’s exports are up nearly threefold from less than $50 billion that year to about $137 billion in 2024, Census Bureau data shows. US exports to Vietnam are up only about 30% in that time – to just over $13 billion last year from less than $10 billion in 2018.
Britain: Britain negotiated a limited trade deal with the US administration, accepting a 10% US tariff on many goods, including autos, in exchange for special access for aircraft engines and British beef.
China: Trade deal with US seeks to allow rare earth exports and easing of tech restrictions
EU: The US and the EU announced a trade framework that imposes 15% tariffs on most European goods — warding off US most recent threat of 30% if no deal had been reached by Aug. 1
Japan: US announced a trade framework to impose 15% tariffs on Japan — down from his previously threatened rate of 25%. The US also said Japan would invest $550 billion into the US and would “open” its economy to American autos and rice.
Philippines: Tariffs on imports from the country to 19% — down just 1% from his previous threat of 20%
Indonesia: Lower tariffs on Indonesian goods to 19% — down from a previously-threatened levy of 32%
Many Asian countries tariff rates are still higher than India
Most of the Asian countries face higher tariff rates compared to India at present
Vietnam faces reduced tariff rate of 20% after the deal with the US. It is to be seen how much India can make the US to reduce the tariffs
India-US: Current Trade Dynamics show trade infact has not slowed down…even after 10% tariff imposition….
US share in India’s exports reached 20% in FY25 and 22.4 % in FYTD 26
Top 15 items exported to US accounted for 63% of total exports
Primary exports will be impacted by 25% tariff by the US
Electronics, Gems and Jewelry, Pharmaceuticals and
Nuclear Reactor & Machinery account for 49% of
India’s exports to US
The earlier tariff imposed by the US on such articles varied from 0% (on diamonds, smartphones, pharma products among others) to maximum 10.8% (other bed linen of cotton). Now all of them will face 25% tariff.
Exports of smartphones and photovoltaic cells to the US have got spurt by the PLI scheme of the Government and rationalization of the GST on cut and polished diamonds have pushed gems and jewellery exports to the US. For the other products it’s the robust demand from the US that led to higher exports.
Impact on Pharmaceutical Sector
India has been a cornerstone of global supply chain for affordable, high-quality and availability of essential medicines, particularly life saving oncology drugs, antibiotics, and chronic dieses treatments.
In generic drug market, India supplies nearly 47% of the pharmaceutical needs of the US. If US shift manufacturing and API production to other countries or domestic facilities, which will take minimum 3-5 years for meaningful capacity. So, tariff may lead to drug shortages and price increase for American citizens.
As US accounts for 40% of India’s pharma exports, if 25% tariff continues, it may hit earnings of pharma companies by 2-8% in FY26, as many big pharma companies’ revenue from US stood in the range of 40-50%.
Further, tariff will reduce competitiveness in the world’s largest pharma market and profit margin pressure due to inability to pass on cost.
Solar Module Trade may be Impacted
India has been an emerging supplier to US solar Industry, as US restricts Chinese products by US. So, imports from India to US has increased massively in 2023 and reached over 8 GW in 2024.
With this new tariff could make products from India more expensive for US buyers. So, Indian supply will become less attractive to US companies, and they may replace solar modules from with tariff-free nations.
Solar Module Trade may be Impacted
India has been an emerging supplier to US solar Industry, as US restricts Chinese products by US. So, imports from India to US has increased massively in 2023 and reached over 8 GW in 2024.
With this new tariff could make products from India more expensive for US buyers. So, Indian supply will become less attractive to US companies, and they may replace solar modules from with tariff-free nations.