Trump tariffs on China: US President Donald Trump on Friday slapped China with an additional 100% tariff, in addition to the existing 30 per cent duties, effective November 1 or sooner. Additionally, the Trump administration will impose export controls on “any and all critical software” from American firms. Trump said the new tariffs are a response to China’s new restrictions on rare earth elements.
How may Trump’s tariffs on China impact the US stock market?
Experts believe a fresh flare-up of trade tensions between the world’s two largest economies is a serious concern for global economic growth and could further deal a blow to riskier asset classes, including equities.
Trump’s tariffs will increase inflationary pressures in the country, making the situation even more complex for the US Federal Reserve, which is grappling with a cooling job market and sticky inflation.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, believes Trump’s announcement to impose 100 per cent tariffs on imports from China from November 1st will have short-term implications for stock markets globally, including India.
“It remains to be seen whether this threat will be carried out or the US president chickens out as he did earlier. This latest action from Trump runs the risk of reigniting the trade war, which Trump started in April,” said Vijayakumar.
Vijayakumar pointed out that China, unlike other countries, is negotiating from a position of strength.
“A trade war between the two largest economies of the world will have negative implications for global trade and global growth in general and for the US and China in particular,” said Vijayakumar.
Vijayakumar emphasised that the probability of the US economy tipping into stagflation is increasing.
“If the trade tensions are not quickly resolved, stock markets now trading at high valuations, will be impacted,” said Vijayakumar.
G. Chokkalingam, founder and head of research at Equinomics Research Private Limited, also believes that global markets will remain weak as both the largest economies will be adversely impacted by this renewed aggression from Trump on trade war.
Chokkalingam pointed out that while the US will be impacted by both higher inflation and lower GDP growth, the Chinese economy will be impacted by lower growth due to setbacks in exports.
“Since both are the largest economies in the world and have strong linkages with the rest of the world, global equity markets are likely to turn weak in the short term,” said Chokkalingam.
Trump tariffs: Impact on the Indian stock market
Trump has imposed a significantly higher 50 per cent tariff on Indian goods imported to the US. While both countries have continued their trade negotiations, there have been few encouraging signs.
Prime Minister Narendra Modi on Thursday, 9 October, spoke with US President Donald Trump to congratulate him on the Gaza peace plan. During the conversation, PM Modi said, the two leaders also reviewed ongoing trade negotiations, noting “good progress”.
The new tariffs on China may not have a direct negative impact on the Indian stock market, but they could potentially weigh on market sentiment due to the subtle indications of the unpredictability of US tariff policies.
India is a key strategic partner of the US, and experts remain hopeful that the US may not maintain its aggressive stance against India for a long period.
“Tactically, it is quite possible for Indian markets to largely escape from this expected global weakness. US may not remain aggressive against India and thereby strengthen China – India – Russia alliance,” Chokkalingam noted.
In fact, the tariff war has a hidden positive impact on the Indian stock market—crude oil prices have crashed after tariff announcements, and they may drop even further, causing a further decline in inflation, which in turn will help the Indian rupee and prepare the ground for the inflow of foreign capital. Now oil is down 24 per cent from its 52-week high.
“Crude oil price fell deeply post his announcement on the tariff war. Global oil prices might go down further. The same could help the Indian economy and markets. Lower inflation, saving of forex reserves and thereby arresting weakness of rupee exchange rate, improving margins of sectors, which use oil and its derivatives, could improve the prospects of the Indian economy and arrest any further significant downfall of Indian markets,” Chokkalingam said.
“It is quite possible for FPIs to favour Indian markets over Chinese markets if the US President doesn’t show similar aggression on India’s exports of goods and services,” said Chokkalingam.
The Indian stock market has seen decent gains over the last few days. Market benchmark Nifty 50 has gained nearly 3 per cent in October so far. Experts believe earnings recovery and an India-US trade deal remain key triggers for the domestic market’s march towards a new record high.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
