The tariff trade seems to be heading into its climax. Several countries have concluded their negotiations and reached deals with the US administration. India and China are still in negotiations with the USA and are finding it increasingly difficult to conclude their talks, which are stuck on contentious issues. The hard negotiations are delaying a deal for both India and China, and the US President has used social media to apply enormous pressure on them.
Meanwhile, our entire focus seems fixated on interim tariffs. But interim tariffs will cease to matter once deals are signed. At that point, only two things will matter. The first is how competitive one’s exports to the USA are. The second is how one can raise competitiveness to grab a larger share of the USA’s imports. Constantly improving the competitiveness of every exporting industry will significantly raise our exports to the USA and position India as a globally relevant player in the future trade for that industry.
This is what investors need to focus on now. The variables that will affect future trade are rapidly changing. Going forward, they will become totally dynamic. The competitive intensity among nations exporting to the USA will rise. India needs to reposition her focus on newer opportunities, even while strengthening existing ones. We need to find newer avenues to grow exports to the USA in newer industries, even as we try to fortify existing exports in several industries. This will keep us in a phase of economic heavy lifting as our industries adapt to the newer policies, cost structures, and opportunities.
The stock markets are yet to genuinely gauge which industries will benefit from the tariff deals. Clarity will emerge only as and when industries announce how they are coping with tariffs and where they see more opportunities. The posturing by President Trump is keeping us busy wondering when the deal will be done and how it will be settled. We are focused on what the tariff rate would finally be in the final deal.
But what we need to focus on are the longer-term ramifications of a tariff deal. We must gauge how industries will be impacted, what measures they will take for risk mitigation, what the medium-term implications for their business will be, and how they will create a longer-term strategic advantage for themselves. There will be some industries that stand to lose from a trade deal and others which stand to gain in the near term.
Investors must be aware of the implications of the deal on the near-term earnings of companies, as well as the risk mitigation measures they will adopt in the event of an adverse deal. The coming weeks will be a phase to understand industries in a newer light and to update ourselves on the way forward for them. The real job of Indian investors will start after the deal is signed. What we are doing now will need to change significantly in the event of a deal.
Going forward, we need to build clarity in our thinking. The market seems to be turning negative in anticipation of a tough deal or stalled negotiations. This may be a shortsighted way to look at the deal. After all, the market will need to realign itself to the contours of an actual deal, and this will be the more difficult part. The market seems to be slowly coming to terms with that reality.