While tariffs are directed at countries like Mexico, Canada, and China, he warned that India might not remain unaffected in this global trade upheaval. His remarks reflect growing concerns about the protectionist policies being adopted worldwide, which have triggered fears of a global economic slowdown.
“It is also too early to expect that India will be spared while tariffs will be slapped on Mexico, Canada and China!” said Kumar.
RBI minutes revealed that while high-frequency indicators show resilience in world trade, the global economy is still struggling with slower-than-expected growth, geopolitical tensions, and policy uncertainties.
Kumar added that the external environment has become increasingly challenging due to subdued global economic performance, weaker trade, and investment growth. He noted that these factors, combined with volatility in emerging market currencies and financial markets, pose considerable risks to India’s growth trajectory. As for the near-term economic outlook, India’s GDP growth is projected at 6.7% for 2025-26, with a cautious balancing of risks tied to international economic conditions.RBI also examined the potential impacts of protectionist trade measures.
RBI examines potential impact
MPC member Saugata Bhattacharya pointed out that the friction in global trade and the uncertainty over the responses from global central banks are key risks that could complicate domestic policy decisions.
He also noted that excessive monetary tightening could further hinder growth, emphasising the balance between inflation control and economic growth.
Another member, Professor Ram Singh also highlighted that subdued private consumption, driven by low real wage growth, is contributing to the slowdown, and that overly restrictive monetary policies have exacerbated the issue by reducing credit growth.
Trump imposes tariffs on Mexico, Canada and China
On February 2, U.S. President Donald Trump announced the imposition of 25% tariffs on imports from Canada and Mexico and 10% on goods from China.
The tariffs are a fulfillment of Trump’s campaign promises and threaten to disrupt global trade dynamics, with potential retaliation from the affected countries.
The imposition of these tariffs has raised concerns about broader economic consequences. Trade analysts, including EY Chief Economist Greg Daco, predict that the tariffs could shrink U.S. growth by 1.5% and push both Canada and Mexico into recession, according to a report by Reuters.
A report issued by Daco also warned of a potential stagflationary shock, where rising inflation coincides with stagnating growth, further exacerbated by financial market volatility.
On the day the tariffs were announced, both the Mexican peso and the Canadian dollar fell sharply, while U.S. stock prices took a hit. With the threat of a full-blown trade war looming, the economic fallout from Trump’s tariff strategy remains to be seen.
Content Source: economictimes.indiatimes.com