Trumponomics: The Art of Deal-Making

The global financial markets got rattled when U.S. President Donald Trump announced tariffs on three major trading partners—Mexico, Canada and China. The immediate reaction was sharp and negative, with key equity indices falling by more than 1 per cent in the aftermath of the announcement. However, in a characteristic move, the administration soon postponed the tariffs for Mexico and Canada after both countries agreed to certain U.S. demands. This reversal led to a swift recovery in the stock markets.

Such unpredictability has become a hallmark of Trump’s leadership style, keeping global investors and policymakers constantly on their toes. Heightened market volatility due to such trade tensions often disrupts capital flows into risk assets, particularly affecting emerging equity markets like India. But trade wars do not only hurt foreign economies. The U.S. itself will bear a significant share of the impact. Estimates suggest that the proposed tariffs could have affected trade worth USD 1.3 trillion, shaved 1.2 per cent off U.S.’ GDP, and added approximately 0.7 per cent to core inflation.

Given that the U.S. is the world’s largest economy and represents over half of the global market capitalisation, these economic tremors inevitably create ripples across financial markets worldwide. Whether this strategy will yield its intended results remains to be seen, but its immediate impact has been clear—heightened uncertainty and volatility. A key question for Indian investors is whether India will be the next target of Trump’s aggressive trade policies. Trump has been vocal about his dissatisfaction with India’s tariff structures, labelling the country a “tariff king” and a “very big abuser” in terms of import duties.

However, a deeper look at U.S.’ trade data offers some reassurance. Despite the U.S. being among India’s largest trading partners, it does not feature in the top five countries with which the U.S. has the highest trade deficits. For example, the U.S. trade deficit with China stands at USD 260 billion, with Mexico at USD 205 billion, and with Canada at USD 129 billion. In contrast, India’s trade surplus with the U.S. is less than USD 50 billion, making it a relatively minor concern in the broader scheme of Trump’s trade wars.

Moreover, India has proactively addressed some of the issues that could have escalated trade tensions. One notable example is the Union Budget’s decision to slash import duties on high-end motorcycles, directly benefiting Harley-Davidson, an issue that Trump had frequently criticised. This move demonstrated India’s willingness to make targeted concessions where necessary, effectively keeping trade frictions at bay.

Meanwhile, while global trade tensions continue to dominate the headlines, India has turned its focus inward, prioritising economic growth through a shift in strategy. The Union Budget 2025 reflects a clear emphasis on boosting domestic consumption while maintaining fiscal prudence. Unlike the previous years, where supply-side measures took precedence, this budget aims to stimulate demand by enhancing disposable income and encouraging private investment. A major highlight is the revision of personal Income Tax slabs, increasing the zero-tax bracket to `12 lakhs under the new regime.

This move is expected to significantly improve household savings and spending capacity, ultimately driving economic growth. Additionally, the absence of new taxes on the equity markets has reassured investors, ensuring continued stability and participation. While macroeconomic policies play a crucial role in shaping investor sentiment, corporate performance remains the ultimate deciding factor.

In this issue, our cover story delves into the financial results of India Inc. for the quarter ending December 2024, offering a comprehensive analysis of earnings trends, sectoral performances, and key investment takeaways. As always, our goal is to provide you with sharp insights and well-researched perspectives to navigate both domestic and global market developments. We hope you enjoy this issue and find valuable information to guide your investment decisions. Happy investing!

RAJESH V PADODE
Managing Director & Editor