Trump tariffs influence: Is a US recession likely and does India need to worry about it?

It’s mayhem in US inventory markets! The S&P 500 has plunged greater than 10% since its highest degree which was seen final month. The turbulence is being attributable to US President Donald Trump’s commerce warfare and economists are watchful on how a lot ache the US financial system could have to bear. Fears are ripe of a US financial recession and there’s additionally discuss of a stagflation-like state of affairs the place GDP progress stagnates and inflation is excessive due to the tariffs. In such a state of affairs, the place does India stand? What will excessive US tariffs and America’s financial slowdown imply for India? We ask specialists and dive into India’s GDP progress prospects, and publicity to US tariffs.
Trump’s self-declared commerce warfare is being seen by economists as a problem for the US financial system because it may end in increased costs, slower progress and fewer jobs. This uncertainty surrounding the long run prospects of the US financial system comes after it confirmed resilience throughout the COVID pandemic. Indeed, the US has been seeing a part of ‘global outperformance’ in accordance to a Reuters report, with GDP progress above development and inflation constantly on the decline.
“There is a period of transition because what we’re doing is very big — we’re bringing wealth back to America,” Trump informed Fox News on Sunday.

S&P 500 benchmark index

Sachchidanand Shukla – Group Chief Economist, L&T is of the view that the timing and sequencing of Donald Trump’s tariff strikes has taken everybody unexpectedly regardless that Trump and tariffs had been supposed ‘known-unknowns’.
“Most expected him (Trump) to target China first, but he announced 25% tariffs on US allies like Mexico and Canada and only later applied 10% tariffs on China. Also, with all the uncertainty around tariffs and the impact on the economy, people tend to postpone consumption, investment and trade decisions, which can impact the real economy,” he tells TOI.
What’s the chance of a US recession?
Recession occurs when the Gross Domestic Product (GDP) of an financial system comes down in a significant manner. Usually, if the GDP of an financial system contracts for 2 quarters in a row, it’s seen as a recession. Historically, recessions are pricey, with the ache of the contraction not being uniform.

US recessions

According to a Reuters report, a US recession could also be attributable to the continued volatility in sentiment, the inventory market crash, and a dip in exercise to Trump’s tariff strikes altering the worldwide commerce.
Diane Swonk, chief economist at KPMG informed Reuters that a US recession by the start of subsequent yr can’t be dominated out. “A price shock on its face, the tariffs could also begin to kill demand,” she was quoted as saying. Diane Swonk stated that if shoppers are cautious of spending, corporations face uncertainty on funding and hiring, then it might have an effect.
DK Srivastava, Chief Policy Advisor, EY India sees the chance of the US financial system going into a vital financial slowdown if not an outright recession as fairly sturdy. “The main reason for this would be the expected adverse impact on aggregate demand due to various cuts in the government programmes and salaries to government employees being currently implemented in the US,” he tells TOI.
However, Srivastava says that a US financial slowdown is likely to be just for a restricted interval. “As cost cutting measures take effect, particularly the expected fall in energy prices both domestically within the US and globally, the US economy should start to gradually improve,” he says.
Madan Sabnavis, Chief Economist, Bank of Baroda says America is unlikely to get into a recession. Tariffs launched by the Trump administration are extra a device to encourage native manufacturing if it really works, Sabnavis informed TOI.
“The result could be higher inflation if taken to the logical end. That can affect demand at the limit. However, this may not really be expected to fructify as the government will be monitoring the flow of goods and services,” he says.
“If other countries do lower tariffs, it can boost US exports on the other side. Hence, prima facie, I do not think a recession looks likely in the USA as of now though one has to see how things work out on the tariff front,” he provides.
Why is the Trump authorities not fearful?
The Trump administration doesn’t seem to be fearful about the opportunity of a US recession. While Trump himself has stated that the US financial system is in ‘transition’ his crew has spoken of ‘detox’. US Commerce Secretary Howard Lutnick has even stated that a US recession could be ‘worth it’ to make it possible for Trump’s insurance policies are in place.

Sachchidanand Shukla notes that from current statements by Trump and his advisors, it seems that they’re prepared to take short-term ache for the financial system, even when it means the US financial system going into recession with the main target being the ‘Main avenue as opposed to Wall Street’ within the medium time period.
“Trump himself has hinted at a ‘period of transition’. It is believed that the idea of the Team appears to be to frontload the pain so that any pain can be blamed on the earlier administration and once the economy recovers, later during Trump’s tenure, they can take credit for it. So, a recession or a Wall Street crash is not a big concern for them right now,” Shukla believes.
Does India need to worry?
Indian inventory markets have seen a large correction in the previous couple of months – with BSE Sensex plunging nearly 14% from it is all time excessive of almost 86,000. Various causes have been cited for the inventory market crash – from the market being overvalued to slower than anticipated GDP progress within the second quarter, RBI’s tight liquidity, and the worldwide financial uncertainty put up Trump’s tariff strikes.

However, a current report by Morgan Stanley means that Indian inventory markets look engaging for the long-term. Morgan Stanley has even retained its year-end Sensex goal of 105,000. “A likely positive shift in fundamentals is not in the price – we expect India to recover lost ground against its peer group through the rest of 2025,” Ridham Desai, Equity Strategist at Morgan Stanley has stated.
The Indian financial system is the world’s quickest rising main financial system, and it’s anticipated to proceed holding that title within the years to come, as per IMF forecasts. The world’s fifth largest financial system noticed its GDP progress gradual greater than anticipated to 5.6% within the second quarter of FY2025. However, economists level to a fast restoration with the just lately launched GDP knowledge displaying 6.2% progress in Q3 FY25.

Madan Sabnavis says that with regards to India there are two issues; “First, if we do reduce tariffs on US imports, domestic industry can be impacted. Second, on account of higher tariffs on Indian goods, the US may source from other markets thus affecting our exports. The latter is more of a concern right now as the US is our major export destination,” he says.
L&T’s Group Chief Economist is assured that India will likely retain its tag of the quickest rising main financial system. “From India’s point of view, our linkages to the US are far lower on trade. We don’t export or import in high numbers as some other large exporters to the US,” Shukla explains.

“But, what a US economic slowdown will do is it will impact the dollar denominated flows to India – both in terms of portfolio flows and FDI. The currency will also take a hit, which in turn would hit the Indian economy,” he cautions.
EY’s DK Srivastava factors to the truth that the Indian financial system has already been going through vital uncertainties on account of world slowdown and provide chain disruptions. “This adverse global impact is likely to be further accentuated with US tariff revisions and impact on exports from India to the US, particularly related to exports of goods,” he says.
However, he believes that coverage makers in India ought to largely give you the option to neutralize this influence by stimulating home demand. “In fact they should continue to rely on government infrastructure expansion which has relatively larger multipliers. India should also benefit from the expected lower global energy prices,” he says.

Sachchidanand Shukla factors out that in a world struggling for progress, India stands out. “China is seeing deflation, Europe has its own issues – a 6-6.5% growth for India seems achievable. India has been making necessary changes to fiscal policy by way of sprucing up its spending level with capital expenditure back on track. On the monetary side, the RBI has begun cutting rates and has infused liquidity and that cycle is likely to continue. Both fiscal and monetary policies are now working to keep the Indian economy on track, so I believe we are relatively better placed than other major economies to deal with US economic disruptions,” he concludes.