A trade war with the US appears imminent: How will you be impacted?

With US President Donald Trump going all out to bridge his country’s trade deficit, worries about a potential trade war have increased. Narendra Nathan scans the data and finds that India has little to worry even if the US imposes additional tax on Indian exports.

Glare on trade surplus with US
Though India has an overall trade deficit, it is trade surplus with the US and therefore, is also getting caught in this trade war.

* Trade deficit value for China only up to Feb 2018. Deficit/surplus figures in US $ billion
Source: Bloomberg; compiled by ETIG Database


India has a reasonably large forex reserve
A trade war can complicate global trade situations, but countries with large forex reserves are reasonably safe.

Indian worries limited due to continued FDI/FPI inflows
Though FDI inflows have moderated in the last few years, continued FPI inflows, mostly into sovereign debt, is helping the currency.

Trade war fears have cut worth of weak currencies
With only a 5.36% cut in value in the past year, the Indian rupee has remained relatively safe.
Argentina: 42.59%
Brazil: 10.78%
Turkey: 25.73%
Russia: 9.19%
Mexico: 13.37%

India’s inflation is also under control
Relatively stable inflation is another factor that should support the currency and inflows.
Argentina: 27.17%
Turkey: 12.15%
India: 4.87%
Mexico: 4.51%
South Africa: 4.5%

India is now one of the fastest growing economies
India is expected to maintain the ‘fastest growing major economy’ tab in the coming quarters and this should help it get more FDI/FPI inflows.

*Growth based on Jan-Mar 2018 growth; only G-20 countries considered

Despite jump, Indian yield is still not very high
Recent flare-up in yield is supporting the FPI inflows into G-Secs.
Turkey: 15.75%
Brazil: 12.01%
South Africa: 9.02%
Mexico: 7.98%
India: 7.88%
10-yr yield: only G-20 countries considered

Developed markets are generating good returns now
With high returns and less chance of currency depreciation, FPI money is flowing more into developed markets.
41.60%: Argentina-Merval
17.33%: US-Dow Jones
14.82%: Brazil-Ibovespa
14.30%: India-Sensex
13.72%: Japan-Nikkei 225