Trump’s Tariff Shock Hits India: 'We Need a 1991-Style Reboot,' Says Market Expert Ajay Bagga

In a late-night post on his Truth Social handle, US President Donald Trump announced a sweeping 25% tariff and additional penalties on Indian imports, effective August 1. The move caught Indian markets and policymakers by surprise, especially after recent trade optimism stemming from deals with the European Union and Japan.

“Remember, while India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high, among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country,” Trump stated.

The announcement sent shockwaves through financial markets and trade circles alike, given the timing, just as the global economy navigates central bank rate decisions, volatile oil prices, and corporate earnings uncertainty.

Gift Nifty Drops Amid Investor Anxiety
Immediately following the announcement, Gift Nifty futures dropped by 0.70% to 24,680, a sharp dip reflecting fears of retaliatory trade action and export headwinds for Indian goods.
Veteran market expert Ajay Bagga said that the move could hurt India’s economy in the short term, especially sectors that rely heavily on exports to the US.

“The 25% punitive tariffs on India with the threat of secondary tariffs due to buying Russian oil will have a short-term impact on Indian markets. India exports $87 billion of goods to the US while importing $45 billion. Sectors like electronics, smartphones, textiles, gems and jewellery, leather goods, engineering goods, seafood, and chemicals will all get impacted,” said Bagga.

Is This Just Posturing? Lessons from Korea and Japan
While markets are reacting sharply, Bagga noted that there may still be room for optimism, citing past instances where Trump’s initial threats were toned down after negotiations.
“Hopes are high that this is yet another maximalist posturing by Trump. Like with the EU, Japan, and Korea, the final tariffs may be nearer to 15%,” he said.

Bagga explained that South Korea, which already had a Free Trade Agreement (FTA) with the US since 2012, was similarly threatened with 25% tariffs but ultimately negotiated them down to 15%, while also granting 0% tariff access to all US goods. However, India’s reluctance to open its agricultural and dairy sectors, particularly to genetically modified US products, could make such negotiations more complex.

Adding further complexity is the ongoing push by the US for massive investment commitments from trade partners. Trump claimed the US government would reap 90% of the profits from the $600 billion EU, $750 billion Japan, and $350 billion South Korea investment deals.

India’s Trade, Currency and Fiscal Outlook Under Threat
Bagga warned that nearly 18% of India’s total goods exports are now exposed to these new punitive tariffs.
“The urgent need is to massively deregulate, boost domestic consumption via GST cuts and stimulus, and protect Indian exporters and their supply chains as they seek other markets or recalibrate to serve the domestic market,” he emphasised.

He also flagged broader macroeconomic risks: India’s Balance of Trade and Current Account Deficit could deteriorate, especially if global oil prices spike due to constrained Russian oil supply.

“The rise in oil prices as Russian oil is constrained from entering the global supply pool is another threat for a big oil-importing country like India. Sentiment weakening could translate into economic weakness, hence the urgent need for fiscal and monetary stimulus along with a 1991-style massive deregulation to unleash animal spirits in the Indian economy,” said Bagga.

Global Markets Digest: Trump Shock

Wall Street Stays Cautious
US equities reacted with caution. The S&P 500 ended the day 0.12% lower, while the Dow Jones Industrial Average lost 171 points. The Nasdaq Composite, however, managed a slight gain of 0.15%. The Federal Reserve kept interest rates unchanged but gave no indication of rate cuts, contributing to investor jitters.

Asia-Pacific Cautiously Mixed
Asia-Pacific markets traded mixed as they digested both Trump’s India move and a 15% tariff on South Korean imports. The Bank of Japan kept interest rates steady at 0.5%, as expected.

Crude Oil, Dollar Index Show Bullish Trends
Crude oil prices continued their upward momentum. Brent Crude gained for a third consecutive session, with resistance seen at $74–$77 and support at $70–$70.50. The US Dollar Index (DXY) also rose for the fifth straight session, with resistance at 99.90–100 and support around 98.90–99.

Bagga on Global Macro Moves and Tariff Tweaks
“The US Q2 GDP at 3% came in above estimates. Private payroll growth was also stronger than expected. The Bank of Canada held rates steady. The Fed, as expected, held rates constant, but Powell’s hawkish tone dropped September rate cut probabilities to 41%,” Bagga noted.

He added two positive trade developments amid the chaos: the US reduced South Korea’s tariffs from 25% to 15%, and the Brazil tariff hike of 50% was delayed by a week, with several goods excluded.

Copper markets also felt the heat as 50% US tariffs on copper were implemented. However, refined copper and cathodes were excluded, leading to a 20% drop in US copper prices.
 

India’s Next Steps: Deregulate or Suffer?

Bagga’s final word encapsulates the looming challenge: “We must unleash the animal spirits of the Indian economy”
With limited negotiation headroom and a complex election year in both countries, India faces difficult choices. As the world watches how New Delhi responds, the need for sweeping reforms and calibrated diplomacy has never been more urgent

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