Trump's new tariffs threaten global growth and India's export boom, warns brokerage major Macquarie

U.S. President Donald Trump on Wednesday announced significantly harsher-than-expected tariffs—a 10% baseline on all imports and higher rates for key partners—a move that sent global equity markets tumbling. Market experts believe that this aggressive tariff move will stifle global economic growth, hurt corporate profits, and fuel inflation, intensifying an existing trade conflict.

The White House has imposed a reciprocal tariff of 26% on India, which is relatively lower compared to those levied on countries like China (34% + 20% earlier), Vietnam (46%), Thailand (36%), Indonesia (32%), and Bangladesh (37%), all of which compete with India for export share.

“This is much worse than what we had anticipated,” Australia-based brokerage firm Macquarie said in a note. “Our primary concern is that if the 26% tariff suggested by the White House is applied as a blanket tariff on all Indian products, it could have a pretty negative impact,” it added.

According to the report, U.S. effective tariffs, even after negotiations, are likely to rise to around 20-25% (versus 3% in '23). “This is a far worse outcome than what our strategist was expecting in the '25 preview (8%),” the report noted.

The report also highlighted that India is in the process of negotiating a bilateral trade agreement (BTA) with the U.S., which will be closely watched.

“The key issue is how this 26% tariff will be applied. The U.S. has calculated all trade barriers at 52% for India. The weighted average tariffs faced by the U.S. are roughly 8% according to GTRI. So, against this 8%, it is difficult to reconcile the 52% quoted by the White House,” Macquarie said in the report.

While the pharma sector is exempt, other sectors such as automobiles, steel, and textiles are expected to bear the brunt of the tariff hike, potentially affecting India’s export growth, the report noted. Currently, pharma exports, which account for $12.7 billion and form almost 14% of total exports to the U.S. from India, are exempt. India overall runs a trade surplus of over $50 billion, according to GTRI as of CY24.

Regarding the auto tariff, the report mentioned that while there has been considerable outcry over automobiles, total exports from India to the U.S. are just $2.8 billion, or roughly 3% of total exports.

What could be the GDP impact?

A recent SBI economist report suggested that a blanket 20%+ tariff could affect India’s GDP by 50 basis points. “We are not sure about the methodology and assumptions used. Note that pharma, semiconductors, and some other sectors are currently exempted, and with a BTA expected to be signed with the U.S. later this year, we will have to assess the eventual GDP implications,” Macquarie said in the report.

Nevertheless, there is downside risk to the GDP projection of 6.7% by the RBI for FY26E, compared to FY25E GDP growth at 6.5%, with trade wars being a contributing factor, it added.