Indian markets feel the chill in Trump-Modi ties

When Narendra Modi dropped in on Donald Trump last week, there was none of the bear-hugging bonhomie that was on display at the White House Rose Garden in 2017.

- Bloomberg

The prime minister came bearing trade concessions on Harley-Davidson bikes and Tesla cars, yet the US president met him wielding a fat stick of tariffs.

Trump set a frosty tone to the much-anticipated rendezvous when shortly before receiving Modi, he announced reciprocal tariffs worldwide: The US will tax foreign goods at the same rate other nations apply to its products. This is worse than the universal levy that Trump had vowed during his campaign. While that would have affected all of US trading partners, this one will hit India particularly hard. From iron, steel, and auto parts to pearls, stones, and mineral fuels, nine of its top 10 exports to the US would suffer incremental duties of 6 to 24 percentage points, say economists at Kotak Mahindra Bank, who estimate the overall hike in tariff at 7 percentage points.

A loss of competitiveness in India's biggest overseas market could put its currency under further pressure. Anticipating lower dollar returns, global stock pickers might add to the nearly $11 billion they've pulled out of India so far this quarter. Capital outflows could complicate the outlook for interest-rate cuts in a slowing economy.