Daijiworld Media Network- New Delhi
New Delhi, Aug 27: The State Bank of India (SBI), in its latest economic report, has cautioned that the steep tariffs recently imposed by the United States on Indian goods could adversely impact the American economy, shaving off 40-50 basis points from its GDP while fueling fresh inflationary pressures.
The report noted that the pass-through effects of higher tariffs, coupled with a weakening dollar, are already stoking renewed inflationary trends in the U.S. Import-sensitive sectors such as electronics, automobiles, and consumer durables are bearing the brunt most severely.
“We believe U.S. tariffs are likely to affect GDP by 40-50 bps along with higher input cost inflation,” the SBI report observed.
According to SBI, inflation in the U.S. is now expected to remain above the Federal Reserve’s 2 percent target till 2026, driven largely by supply-side factors emanating from tariff hikes and exchange rate movements.
The U.S. has raised duties on around USD 45 billion worth of Indian exports. While labour-intensive sectors like textiles and gems & jewellery will be under pressure, products such as pharmaceuticals, smartphones, and steel are relatively shielded due to exemptions and steady domestic demand in America.
The report also warned that in a worst-case scenario, if all USD 45 billion worth of Indian exports are hit with the 50 percent duty, India’s trade surplus with the U.S. could potentially slip into deficit. However, it expressed optimism that negotiations between the two sides would restore confidence and stabilize exports.
Interestingly, the new tariff regime places Indian goods at a greater disadvantage compared to other key exporters. Duties on Chinese products stand at 30 percent, Vietnamese at 20 percent, Indonesian at 19 percent, and Japanese at 15 percent.
The U.S. remains India’s biggest market for both textiles and gems & jewellery. India’s share in America’s textile imports has been steadily rising, even as China’s dominance has waned in recent years. Similarly, gems and jewellery exports, worth nearly USD 28.5 billion annually, are heavily dependent on U.S. buyers. With tariffs on these products doubled from 25 percent to 50 percent, exporters are bracing for significant disruptions.