With economists predicting a recession in the US due to Trump’s tariff policies, ‘Trumpcession‘, as it is being termed, will only add to global uncertainties for India’s economy and markets when tariff threats are already hurting sentiment.
What are the odds of a Trumpcession?
Within months, sentiment has soured in the US from hopes of Trump ploughing money into the economy to a Trumpcession taking shape. Trump’s tariffs have spooked investors, with fears of an economic downturn driving a stock market sell-off that has wiped out $4 trillion from the S&P 500’s peak last month, when Wall Street was cheering much of Trump’s agenda. A barrage of new Trump policies has increased uncertainty for businesses, consumers and investors, notably back-and-forth tariff moves against major trading partners like Canada, Mexico and China.
“I hate to predict things like that,” Trump told a Fox News interviewer when asked if a recession was coming in 2025. “There is a period of transition, because what we’re doing is very big — we’re bringing wealth back to America,” he said. “It takes a little time.”
“The Trump administration seems a little more accepting of the idea that they’re OK with the market falling, and they’re potentially even OK with a recession in order to exact their broader goals,” Ross Mayfield, investment strategist at Baird, told Reuters. “I think that’s a big wake up call for Wall Street.”
Amid concerns over a GDP growth slowdown in the US, the Atlanta Fed’s GDPNow model estimate for annualized growth in the current quarter was a stunning -2.8% on Monday, down from +2.3% last week. A month ago the model showed that growth in the January-March period was tracking close to +4.0%. However, with new economic data, there’s every chance -2.8% turns into a positive reading in a few weeks.
Consumer sentiment in January slumped the most in three and a half years, retail sales dropped by the most in nearly two years, real spending fell at the fastest rate since early 2021, and retail giant Walmart has warned of a tough year ahead. Economist Phil Suttle told Reuters he expected Trump’s agenda to weigh on the economy this year, but didn’t expect it to have such an apparently negative impact so quickly. But if the “blunt and chaotic” implementation of Trump’s spending and trade policies hit growth harder than imagined, the Federal Reserve may cut rates in the second quarter, Suttle reckons. The Fed’s rate-cutting cycle is on hold for now, largely because of the uncertainty surrounding Trump’s trade and fiscal policies. But an impending “Trumpcession” probably wasn’t on policymakers’ mind when they pressed the pause button.
Where does India stand?
Uncertainty hangs heavy over Indian markets and overall economy as the April 2 reciprocal tariffs loom even as India is trying to avert them through negotiations with the US. Vinod Nair, Head of Research at Geojit Financial Services, notes, “The ambiguity surrounding US tariffs has led to risk aversion and equity outflows, particularly from emerging markets. However, Indian markets have demonstrated resilience, and a recovery in corporate earnings could significantly improve domestic sentiment.” As per YES Securities, “By pursuing trade negotiations, rationalizing tariffs, and embracing competitiveness over protectionism, India is laying the groundwork for a stronger economic partnership with the United States.”
A parliamentary panel was informed on Monday that while the US has not officially made any announcement regarding tariffs on India, key negotiations were taking place on this count. India has sought time till September before taking any concrete decision on tariffs, ET has reported.
“A significant consequence of the ongoing market correction is that India is now outperforming the US. During the last one month, while S&P 500 is down 7.5% Nifty is down only 2.7%. More importantly, the dollar index is down from 109.3 when Trump assumed presidency to 103.71 now. If this trend continues it will be good for emerging markets like India. Capital outflows from India will decline,” Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
A recent Crisil Intelligence report says Trump’s reciprocal tariffs can affect exports, which account for approximately 22 per cent of India’s GDP, adding to the pain from moderating global trade growth and heightened trade uncertainties.
Low demand in the US due to recession can impact India in a number of ways, including job losses, reduced remittances and decreased exports. A recession in the US will hit several export-oriented sectors such as IT services. IT stocks, including Coforge and Infosys, dropped by as much as 4% in early trading on Tuesday, March 11, as recession fears surrounding the US economy weighed on market sentiment. India’s exports in February were affected by the threat of US tariffs, an official told Reuters, indicating that the US tariff threats are already taking a toll on India’s economy. Concerns about a US recession and a wider global slowdown due to tariff wars could further intensify pressure on the rupee, which is already one of Asia’s worst-performing currencies this year, with ongoing portfolio outflows also weighing on the local unit. A recession in the US, coupled with the global tariff wars, will lead to more volatility in the markets. Foreign investment and capital inflows as well as currency valuations can witness a lot of uncertainty. While reduced US investment in India’s economy will hamper GDP growth, risk-averse US investors can pull more money out of Indian markets for safe havens.
(With inputs from agencies)
