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Key Points

The SBI report reveals that new US tariffs could significantly impact American economic growth. These measures are expected to reduce US GDP by 40-50 basis points while driving inflation higher. Import-sensitive sectors like electronics and automobiles are experiencing the strongest effects from increased costs. Despite the challenges, the report suggests trade negotiations could eventually restore export confidence.

Key Points: US Tariffs Could Cut GDP 50 Basis Points Fuel Inflation SBI

  • US GDP could decline 40-50 basis points due to new tariff implementation
  • Inflation expected to remain above 2% target through 2026
  • Electronics and automobiles facing sharpest impact from higher costs
  • India's trade surplus with US could turn into deficit in worst case
3 min read

US tariffs likely to affect US GDP by 40-50 bps, fueling inflationary pressures: SBI Report

SBI report warns US tariffs may reduce GDP by 40-50 bps while pushing inflation above 2% target through 2026, hitting electronics and auto sectors hardest.

"We believe that U.S. tariffs are likely to affect U.S. GDP by 40-50 bps along with higher input cost inflation - SBI Report"

New Delhi, August 27

The recent move by the United States to impose steep tariffs on Indian goods is expected to weigh on the US economy, pushing up inflationary pressures and impacting growth, according to a report by the State Bank of India (SBI).

The report said that US GDP could be affected by 40-50 basis points due to the new tariffs, while the economy is also likely to face higher input cost inflation.

"We believe that U.S. tariffs are likely to affect U.S. GDP by 40-50 bps along with higher input cost inflation," the report noted.

The report highlighted that signs of renewed inflationary pressure have already started emerging in the US, mainly due to the pass-through effects of the recent tariffs and a weaker dollar.

It also flagged that import-sensitive sectors such as electronics, automobiles, and consumer durables are feeling the impact most sharply.

The report stated that inflation in the US is now expected to remain above the 2 percent target through 2026, driven by supply-side factors arising from higher tariffs and exchange rate movements.

The US has imposed tariffs on about USD 45 billion worth of Indian exports. Labour-intensive sectors such as textiles and gems, and jewellery are expected to face moderate pressures.

However, exports of pharmaceuticals, smartphones, and steel are relatively insulated due to exemptions, existing tariff structures, and steady domestic demand in the U.S.

The report also noted that if all USD 45 billion worth of exports are hit by the new 50 percent tariffs, India's trade surplus with the U.S. could turn into a trade deficit in the worst-case scenario.

"However, we believe trade negotiations will restore confidence and improve exports to the U.S.," the report added.

The report also pointed out that while tariffs on Indian goods have been raised to 50 percent, duties on Chinese exports stand at 30 percent, on Vietnamese goods at 20 percent, Indonesian exports at 19 percent, and Japanese products at 15 percent.

The US is India's largest export destination for textiles, a sector where India has steadily gained market share over the past five years, even as China's share has declined. This underscores India's growing role in the U.S. supply chain.

Similarly, the US remains the biggest market for India's gems and jewellery sector, accounting for nearly one-third of its USD 28.5 billion annual shipments.

With tariffs on these products being raised from 25 percent to 50 percent, the report outlined that exporters are preparing for significant disruption.

- ANI

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Reader Comments

P
Priya S
Why is India facing 50% tariffs while China gets 30%? This seems unfair targeting. Our textile and gems industries have worked hard to build market share - hope our negotiators can get better terms soon.
M
Michael C
As someone living in the US, I can already see prices going up on imported goods. This tariff war is going to hurt American consumers the most. We need smarter trade policies that don't punish regular people.
A
Ananya R
Good to see that pharmaceuticals and smartphones are relatively safe. These are high-value exports where India has strong competitive advantages. Maybe this is a push for us to focus more on value-added products rather than just volume.
S
Suresh O
The timing couldn't be worse with global economic uncertainty. Both governments need to sit down and find middle ground. Trade wars benefit no one in the long run. Hoping for sensible diplomacy to prevail.
J
Jessica F
While I understand the concerns, maybe this is an opportunity for India to diversify its export markets and reduce dependency on the US. The EU and other Asian markets offer great potential that we haven't fully tapped into yet.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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