India vs US: Why US Tariffs war could hurt it’s economy more

US tariffs on Indian exports—set at 25% and compounded by penalties related to India’s trade with Russia—are fueling heightened global trade tensions and triggering a critical economic debate. A comprehensive 25-page report by SBI report on US tarrifs reveals a stark contrast in the potential fallout for both nations. While India faces a manageable economic impact, the US risks significant inflationary pressures, GDP contraction, and currency downgrades. This article delves into the report’s findings, supplemented by recent economic insights, to explore how these tariffs could reshape the economic trajectories of both countries, highlighting India’s resilience and the US’s looming vulnerabilities in an increasingly volatile global market.

According to SBI report on US tarrifs, the US economy is poised to bear the brunt of the new tariffs. The report estimates that the tariffs could reduce US GDP by 40–50 basis points, driven by supply-side shocks that increase intermediate costs and fuel inflationary pressures. US inflation, already showing signs of resurgence, is projected to rise by 2.4% in the short term, with a lingering 1.2% increase in baseline inflation even after economic adjustments in the long run. This inflationary surge is expected to hit US households hard, with the average household facing an additional US$ 2,400 annually due to higher prices. Low-income families could lose around US$ 1,300, nearly triple the relative burden compared to high-income households, which may face losses up to US$ 5,000 but with less financial strain.

The report highlights that the US’s total imports from the rest of the world, valued at approximately US$ 3,266 billion, amplify the potential for a boomerang effect. The tariffs, intended to protect domestic industries, could disrupt global supply chains, leading to higher production costs and reduced economic output. SBI Research notes that the US faces a “greater risk of downgrades” in GDP, inflation, and currency stability compared to India, describing the tariff move as a “bad business decision” that could exacerbate existing economic vulnerabilities.

India’s resilience in the face of US tariffs

In contrast, India’s economy is expected to weather the tariff storm with greater resilience. The US accounts for 20% of India’s exports in FY25, with projections indicating a rise to 22.4% in FY26. However, India’s diversified export destinations, with the top 10 countries accounting for only 53% of total exports, mitigate the impact of the US tariffs. SBI Report on US tarrifs estimates that the tariffs will shave 25–30 basis points off India’s GDP growth in FY26, a significantly smaller impact than the projected 40–50 basis points for the US. Key export sectors such as electronics, gems and jewelry, pharmaceuticals, and machinery, which constitute 49% of India’s exports to the US, will face challenges, but the report suggests that global supply chains will “auto-adjust” to cushion the blow.

India’s domestic demand-driven economy and robust service sector further bolster its resilience. Moody’s Ratings, in a separate note, emphasized that India’s low dependence on goods trade and strong internal growth drivers, such as government initiatives to boost private consumption and infrastructure spending, position it well to counter global trade disruptions. The report also highlights India’s strategic push for “Made in India” branding, urging businesses to leverage this as a hallmark of quality to maintain competitiveness.

Global trade dynamics and strategic implications

The SBI report on US Tarrifs underscores the broader implications of the tariff standoff, attributing the current trade statemate to political motivations rather than economic rationale. It argues that trade talks are being used as an “incorrect lever” by the US administration, potentially undermining long-term bilateral relations. The report also notes that other Asian countries face higher tariff rates than India, suggesting that India could negotiate favorable terms in future trade talks.

For India, the tariffs present an opportunity to diversify export markets, particularly by strengthening ties with the Global South. A Financial Express opinion piece advocates for closer cooperation with developing nations to reduce reliance on the US market, aligning with India’s growing emphasis on Global South partnerships. Meanwhile, the US’s tariff strategy risks alienating key trading partners, with potential ripple effects on its own consumers and industries.

Conclusion

SBI report on US tarrif analysis paints a picture of contrasting economic trajectories for India and the US amid the new tariff regime. While India faces a manageable economic impact, supported by its diversified export base and robust domestic growth, the US risks significant inflationary pressures, GDP contraction, and currency weakening. As global trade tensions escalate, India’s strategic positioning as an economic and military powerhouse, coupled with its adaptable supply chains, could mitigate the tariff’s effects. For the US, the tariffs may prove to be a costly misstep, with far-reaching consequences for its economy and global trade relations.