India’s economic growth could face a sharp slowdown if the 50 per cent tariffs imposed by US President Donald Trump remain in place for an extended period, according to Morgan Stanley. The impact could range between 0.4 per cent and 0.8 per cent, the bank said in a report quoted by ANI.
The US recently increased tariffs on Indian goods to 50 per cent. Morgan Stanley warned that if these duties remain at current levels for 12 months, growth could face “downside risks,” assuming no mitigating factors. “We will closely monitor geopolitical developments and high frequency growth data. On the trade side, the sixth round of negotiations between India and the US, currently slated for August 25, will be important to track,” the report added.
“To assess the impact of tariffs on India’s GDP, we use inferences from the input-output table modelled by our global team,” the finanacial firm said.
Also read: Donald Trump's 50% 'penalty' tariffs threaten India's manufacturing goals, warns Moody's; GDP growth could slow by 0.3%
The analysis assumed all goods exports are subject to a 50 per cent tariff rate, which would directly shave 60 basis points (bps) off growth, with indirect effects of a similar scale over a year. For the 67 per cent of non-exempted goods, the direct impact is estimated at 40bps, with an equal indirect hit, taking the total potential loss to 80bps.
Morgan Stanley stressed that the modelling is based on a linear impact from the external demand shock and does not factor in potential mitigating steps such as domestic policy support or export market diversification. The bank noted that policy intervention could step up to bolster domestic growth if downside risks persist.
Breaking down the tariff impact, the report said primary effects stem from lower demand in tariff-hit sectors or products. Secondary effects ripple through global supply chains, cutting intermediate demand and potentially reducing wages or jobs. Tertiary effects could arise from smaller profits and a weaker business climate, discouraging investment.
The US recently increased tariffs on Indian goods to 50 per cent. Morgan Stanley warned that if these duties remain at current levels for 12 months, growth could face “downside risks,” assuming no mitigating factors. “We will closely monitor geopolitical developments and high frequency growth data. On the trade side, the sixth round of negotiations between India and the US, currently slated for August 25, will be important to track,” the report added.
“To assess the impact of tariffs on India’s GDP, we use inferences from the input-output table modelled by our global team,” the finanacial firm said.
Also read: Donald Trump's 50% 'penalty' tariffs threaten India's manufacturing goals, warns Moody's; GDP growth could slow by 0.3%
The analysis assumed all goods exports are subject to a 50 per cent tariff rate, which would directly shave 60 basis points (bps) off growth, with indirect effects of a similar scale over a year. For the 67 per cent of non-exempted goods, the direct impact is estimated at 40bps, with an equal indirect hit, taking the total potential loss to 80bps.
Morgan Stanley stressed that the modelling is based on a linear impact from the external demand shock and does not factor in potential mitigating steps such as domestic policy support or export market diversification. The bank noted that policy intervention could step up to bolster domestic growth if downside risks persist.
Breaking down the tariff impact, the report said primary effects stem from lower demand in tariff-hit sectors or products. Secondary effects ripple through global supply chains, cutting intermediate demand and potentially reducing wages or jobs. Tertiary effects could arise from smaller profits and a weaker business climate, discouraging investment.
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