Trump’s tariffs make rupee hit record low. What does this mean for the markets, economy?
US President Donald Trump’s tariffs on China, Mexico and Canada have caused the rupee to fall and spooked markets.
On Monday, the rupee hit an all-time low of 87.29 against the US dollar, while the Sensex and Nifty dropped in early trading by 400 points and 160 points respectively.
But what happened? And what do Trump’s tariffs mean for the markets and the economy?
Let’s take a closer look:
What happened?
Trump has announced
tariffs of 25 per cent on Canada and Mexico and 10 per cent on China.
The tariffs took effect on Saturday.
Trump wrote on social media, “We need to protect Americans, and it is my duty as President to ensure the safety of all. I made a promise on my campaign to stop the flood of illegal aliens and drugs from pouring across our borders, and Americans overwhelmingly voted in favour of it.”
“Will there be some pain? Yes, maybe (and maybe not!)” Trump added. “But we will Make America Great Again, and it will all be worth the price that must be paid.”
As per the New Indian Express, the dollar index went up 1.35 per cent to 109.83.
The index catalogues the power the green back against six currencies – the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc.
The US dollar surged on Trump tariffs sending global FX to multi-year lows as the euro fell to 1.0224, GBP to 1.2261 and yen to 155.54. The US dollar index rose to 109.77, while US 10-year yields were at 4.4980 per cent.
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“Amongst Asian currencies Yuan slumped to 7.3551, IDR to 16448 and KRW to 1470,” said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.
Mexico and Canada responded by placing tariffs on US goods – effectively initiating a tariff war.
As per NDTV, Canadian Prime Minister Justin Trudeau announced 25 tariffs on over $100 billion of American goods.
Mexican President Claudia Sheinbaum Pardo wrote on X “the problems are not resolved by imposing tariffs, but by talking and dialoguing”.
“I instruct the Secretary of Economy to implement Plan B that we have been working on, which includes tariff and non-tariff measures in defense of Mexico’s interests,” she added.
China, meanwhile, has vowed to take Trump’s tariffs on at the World Trade Organisation.
Meanwhile, Asian markets including the Indian stock market reacted to the developments with alarm.
NDTV quoted Vikram Kasat, the head of advisory of PL Capital of Prabhudas Lilladher, as saying investors were “shocked” by Trump’s actions.
Though Trump has spared India thus far, he has in the past referred to New Delhi as a ‘tariff king.’
What do Trump’s tariffs mean for markets and economy?
Experts are worried about the impact of a trade war on the Indian stock market.
A Moneycontrol piece warned that the dollar growing stronger is bad news for the Indian stock market.
This is because foreign investors will look for safer destinations.
As per New Financial Express, Morgan Stanley in a note warned that “the risk of our worst fears materialising has risen. Risks are skewed towards further escalation. Asia will be exposed on account of high trade orientation and seven economies run large trade surpluses with the US.”
“Despite an excellent Budget, the market will be under pressure from the Trump tariffs and the heightened global uncertainty these ‘initial round of tariffs’ has triggered,” PTI quoted VK Vijayakumar, the Chief Investment Strategist at the Geojit Financial Services, as saying.
But not everyone agrees this is a bad thing.
Madhusudan Kela, founder of MK Ventures, told Business Today, “As Trump is back again, these tariffs are going to stay and I think it will disrupt the global economy, trade and the supply chain as well for sure, which is not a good news on a macro basis. The relative positioning of India is in a sweet spot and we could potentially can benefit out of this situation in the medium- to long-term.”
“Foreigners hold around $900 billion in India and they have sold $30 billion, which is 3 per cent of the overall holding. Can they sell another 3 per cent if there is real global turmoil? It is entirely possible and we should not actually take that call. As an investor, I will tighten my belt and grip more on companies. We will put in a tremendous amount of work and the market will provide volatility. It will provide us excellent entry points to own companies from a long-term perspective.”
He said he expects the outflow of foreign institutional investors (FIIs) to subside.
“Trade has gone far too tilted in favour of the US. US is today around 75 per cent of the overall global markets in the world and this kind of tilt can’t last forever. Foreigners should return to our market this year. I expect this relentless foreign selling to subside during this year,” Kela said.
A piece in Moneycontrol noted that Indian manufacturing could actually gain from a trade war between the US, China, Mexico and Canada.
This is because global companies could continue to move away from China when it comes to sourcing products. The piece said Mexico and Canada could become less attractive destinations for imports to the US.
“However, how this actually plays out is hard to tell as these tariff are feared to trigger a global trade war. This brings with it a few key concerns with contradictory repercussions: One, such uncertainty can disrupt global supply chains, which could be inflationary for the Indian economy as we are still import dependently for a lot of component supplies,” the piece argued.
It added that China, Mexico and Canada could hurt Indian industry by dumping their excess capacities here.
With inputs from agencies
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