The impact of US tariffs on Indian exports may not be a major concern, as the bigger risk lies in financial markets rather than trade, according to Neelkanth Mishra, Chief Economist at Axis Bank and Head of Global Research at Axis Capital.

Mishra explained that any changes in US trade policies, particularly under a potential Trump administration, could create volatility in global capital flows, interest rates, and the US dollar, which would have a more significant effect on India’s economy. A shift in US monetary policy or tax incentives for reshoring manufacturing could impact foreign investments and borrowing costs for emerging markets, including India.

Mishra highlighted that Trump’s trade strategy is shaped by three key objectives.

First, he aims to move away from multilateral trade agreements, favouring direct negotiations with individual countries.

Second, his focus is on reducing the US trade deficit, which could lead to protectionist policies.

Third, there is a strong push for a more inward-looking economic approach, with an emphasis on strengthening the US dollar.

As Mishra puts it, “The direction of tariffs is likely to be towards reducing the trade deficit.” He further added, “Trump’s policies could cause global capital flows to shift, impacting financial stability more than trade itself.”

Also Read: Markets may be underpricing tariff risks, earnings could take a hit: Citi’s Drew Pettit

While specific tariff changes might create short-term disruptions, Mishra emphasized that the broader financial implications, particularly currency fluctuations and shifts in global investment patterns, will have a more pronounced effect on India.

If global risk sentiment deteriorates, capital outflows from emerging markets could lead to currency depreciation and higher borrowing costs. Additionally, a stronger dollar could put pressure on India’s trade balance, increasing the cost of oil imports and widening the current account deficit.

Also Read: Tariff uncertainty disrupts markets, puts auto industry at risk: GlassRatner’s Seth Freeman

Mishra also stated that India’s strong domestic demand and ongoing structural reforms could help cushion the impact of external shocks. However, he cautioned that the global financial environment, shaped by US trade and monetary policies, remains a key factor influencing India’s economic trajectory.

For the entire interview, watch the accompanying video

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