Could India be a hedge against trade wars and tariffs?

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1. SS: In the market chaos since April 2 “liberation day”, investors are appearing to view India as a hedge against a potential flux in trade flows in the future.

   Analysts say India’s consumer-led economy, low exposure to international trade, and large number of domestic investors partly insulates it from the sell-off ravaging global markets in recent weeks.

   Morgan Stanley points out that only 12% of India’s economy is dependent on exports of goods. Further, merchandise exports to the U.S. made up an even smaller proportion— 2.1% of GDP. Strip out pharmaceutical imports and energy, both of which are tariff-exempt for now, and the tariff-impacted goods make up only 1.7% of India’s GDP.

   The country also appears to exhibit qualities that could see it develop into an emerging market safe haven in the future.

   For instance, India’s economy is consumer-driven and less reliant on exports than other emerging market economies to drive growth. This makes it relatively well-insulated from external shocks, such as trade wars, according to experts.

2. India unfortunately did a mistake of signing a badly negotiated FTA with ASEAN which now China uses to flood their markets with its own products. In the early days it led to their pharma and chemical industry getting wiped out but thankfully they have recovered. Others like electronics, small tools, machinery did get wiped out and they definitely need foreign capital and industries to counter which requires them to open up to EU, US, UK and Japan.

3. India can improve, but it will be tough to replace China in any way with India thanks to China’s developed infrastructure.

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