Trade Wars and Tariffs: How India weathers the global storm

The trade war started suddenly and caused a big shock. On April 3rd, just one day after President Donald Trump announced major tariffs, the stock market dropped sharply. The Russell 3000, which tracks U.S. stocks, fell by 5%. In short, the trade fight surprised everyone and made the market fall quickly.

The next day, on April 4th, the market dropped another 6% after China said it would fight back by putting a 34% tax on all goods from the U.S. In simple terms, China's strong response made the situation worse, and the stock market kept falling.

Recently, gold prices have gone down and the dollar has lost value—which is unusual during uncertain times. Meanwhile, most other signs show a gloomy and negative outlook.

Oil prices have dropped, with Brent crude falling from $75 to $66 per barrel, and copper prices have also gone down. In many countries, bank stocks have fallen sharply too—which is worrying because banks are closely tied to how well the economy is doing.

Small investment banks that mainly earn from helping companies merge or buy others are struggling the most. Some private companies like Klarna, Medline, and Stubhub had plans to sell their shares to the public, but they have now put those plans on hold. This shows that businesses are feeling unsure about the current market conditions and are choosing to wait.

The VIX, which shows how much the stock market is expected to rise or fall, has gone up sharply—meaning investors are worried about big market swings. At the same time, bank experts are now warning that the risk of a global recession this year is growing. For example, JPMorgan Chase says there is a 60% chance the world could go into a recession, which means a slowdown in the economy that could affect jobs, businesses, and spending.

Investors Shift to Safer Defensive Stocks

One simple way to gauge how investors view the global economy is by comparing defensive and cyclical stocks. Defensive stocks, tied to companies like grocery stores and utilities, provide essentials people need every day—food, power, water. These businesses tend to hold steady even in tough times, making them “safe” investments. In today’s shaky market, investors are shifting money into these defensive stocks, seeing them as a reliable choice amid uncertainty.

Cyclical stocks, on the other hand, belong to companies like airlines and carmakers, which depend on people feeling confident enough to spend on extras like travel or big purchases. When the economy slows, these discretionary expenses get cut, and cyclical stocks suffer. Over the past week, cyclical stocks have dropped about eight percentage points more than defensive ones—the widest gap since the early COVID-19 lockdowns in 2020. According to *The Economist*, this split signals that investors are bracing for a mild global recession.

Global Markets Struggle Amid Tariff Fears

The U.S. stock market has seen the steepest declines, but the pain is global. Over the past month, the MSCI World Index—covering about 85% of stock market value in 23 wealthy nations—has fallen nearly as much as U.S. markets. In emerging markets and Japan, the drop in cyclical versus defensive stocks has been less severe than in the U.S., but Europe’s declines are almost on par. Investors have also trimmed profit expectations for American and European companies by 1.5% this year, reflecting growing pessimism.

This aligns with pre-Trump research showing that U.S. tariffs could harm other countries as much as, or more than, they harm the U.S. The sudden trade war, sparked by Trump’s tariffs on April 2nd and China’s retaliatory 34% tax on U.S. goods, has rattled markets worldwide, amplifying fears of a broader economic slowdown.

Global Economy Shows Strength Despite Tariffs

Despite the tariff turmoil, the global economy remains resilient. A March survey of business activity showed gains from February, especially in services like banking, healthcare, and tourism—sectors so far untouched by tariffs. Goldman Sachs’ real-time data also suggests the world economy is growing just shy of its full potential. In the OECD, a group of mostly rich nations, unemployment holds below 5%, a sign of solid job markets and economic stability.

Strong U.S. Economy Faces Tariff Test

The U.S. economy is in robust shape as it faces this challenge. On April 4th, official data revealed 228,000 new jobs added last month—far exceeding forecasts. Recent reports reinforce this strength: the Dallas Federal Reserve estimates U.S. growth at over 2% annually, and Goldman Sachs notes America is outperforming other wealthy nations. While many criticize Trump’s tariff move as a misstep, he inherited a thriving economy. The key question now is how much pressure it can withstand.

How This Could Affect the Indian Economy

India’s economy may face a mixed bag of challenges and opportunities from this global trade war. As a major exporter of services and goods like textiles and pharmaceuticals, India could suffer if global demand weakens due to a recession—especially in key markets like the U.S. and Europe, where stock declines and lower profit expectations signal caution. Falling oil prices (Brent crude down to $66 per barrel) could be a silver lining, reducing India’s import costs since it relies heavily on imported energy. However, a weaker U.S. dollar and declining commodity prices like copper might hurt Indian exporters, while foreign investors pulling back from riskier emerging markets could slow capital inflows. Still, India’s strong domestic market and low unemployment could cushion some blows, though its growth may hinge on how deftly it navigates this uncertain global landscape.

(The author of this article is a Defence, Aerospace & Political Analyst based in Bengaluru. He is also Director of ADD Engineering Components, India, Pvt. Ltd, a subsidiary of ADD Engineering GmbH, Germany. You can reach him at: girishlinganna@gmail.com)

(Disclaimer: The views expressed above are the author's own and do not reflect those of DNA)