Trade war may impact India’s exports: ASSOCHAM

The Dollar Business Bureau

India’s exports would be impacted if the current tariff war escalates into a full-fledged trade war, apex trade body ASSOCHAM said, adding that there would be severe damage to the Indian economy too.

“If the tariff war escalates into a full-scale global trade war, it would have a collateral damage for the Indian economy as well, with the country's exports taking a hit, current account deficit facing pressure and the GDP taking a setback,” the trade body said in a statement on Sunday.

The Chamber further said that the move of the US administration to levy tariffs could lead to a further retaliation against the US but it may not have a direct impact on India.

“Instead of de-escalating, the trade tensions between the US and China with the fall out impact on other trading majors, have only escalated; spooking the global financial markets,” the statement said.

“The tensions in the market look quite justified, as President Donald Trump’s move to levy tariff on trading partners could lead to a further retaliation against the US. Though India may not get much of a direct impact, the collateral damage could be in the form of adverse impact on the overall sentiment,” it added.

DS Rawat, Secretary General, ASSOCHAM said, that even if India opt for taking reactive actions on the imports, the exports could be impacted more as the volatility in foreign exchange rates would increase.

“We must have a backup plan which should include opening bilateral trade with key trading partners, taking precaution that we remain WTO compliant,” he said.

The Chamber cautioned that there would be outflow of portfolio investment taking a hit on the dollar rate, in case the market confidence is further eroded.

The increased demand of US dollar would put pressure on Indian currency along with other currencies of the emerging markets as the US dollar is used as a safe haven in the midst of uncertainties, it added.

“It is no more a scenario where it was considered only a threat. The US administration has started signing the orders on tariff revision and other protective measures. In the process, the influence of multilateral organisations like WTO is also on the wane. When countries get into this kind of a slugfest, the multilateral regime takes a big knock,” ASSOCHAM said.