Tariff Chaos Returns, Again

THE TAKE 

With Trump Tariffs Back, India And The World Must Rethink Trade For Good

India and the UK finally signed a long-delayed and widely debated free trade agreement (FTA) on 6 May.

The agreement will make around 99% of Indian exports to the UK tariff-free, even as India will cut tariffs on select British imports. Think: whiskey.

An apparel manufacturer who exports a substantial portion of his products to the UK told me yesterday that he expects it will take anywhere between 12 to 15 months for the agreement to actually take effect. At that point, he expects to ship goods into the UK at zero duty, compared to the average 11% he pays now.

So, we are still some distance from impact.

Free Trade Promises Amidst Political Uncertainty

This is typically how long tariff agreements take to be implemented, given the sheer number of items involved and the complexities surrounding them.

Take, for instance, India’s own tariff negotiations with the United States—supposedly on a fast track, but for entirely expected reasons, taking their time.

Mostly because India is not putting the entire domestic market on a zero-tariff platter. It has never done that. It is unlikely to do so now.

Except in a few cases, of course. Think whiskey again.

Then came Donald Trump’s latest warning to Apple: they cannot manufacture iPhones in India. If they do, those imports into the US will be hit with a 25% tariff.

This is almost a company-specific threat, rather than a country-level one. Presumably, Apple will have some company in this latest round of not-so-friendly fire.

Europe Also Feels The Heat

Over the weekend, Trump also announced plans to impose a 50% tariff on imports from the European Union—more than double his earlier threat of 20%.

His reasoning?

“Our discussions with them are going nowhere,” he said. The bloc is “very difficult to deal with.”

This could kick in as early as next weekend.

The Economist reported that Trump’s statement came as a particular blow to European officials, who had been cautiously optimistic. According to an internal memo dated May 14, seen by The Economist, they believed the threat was receding, since America was beginning to feel the economic consequences of the president’s earlier tariff rampage.

Who’s to blame here?

Clearly, the EU officials—for deluding themselves into thinking the problem was about to vanish.

It was vanishing only because they had shut their eyes.

As has been the case with governments everywhere.

India believed a deal was within reach—until Trump issued a highly specific threat to Apple, warning it against manufacturing in India.

Why, one wonders, is India being singled out so specifically? After all, it is not seen as an antagonistic power like China, at least from the American perspective.

The events of the past week have made one thing clear: trade uncertainty is here to stay.

This is not the boy who cried wolf. This is the boy announcing the arrival of it.

Businesses in India must now accept that they cannot bank on hope—or on Trump’s memory—for last-minute deals.

Even a deal that’s officially signed may never materialise. And even if it does, like the India–UK FTA, it will take a year or more to go into effect.

Tariff Uncertainty Is The Constant

A recent Allianz survey of 4,500 businesses—including those in China—found that most exporters are already scouting for new markets, even in scenarios where tariffs might ease.

That doesn’t mean everyone has stopped hoping. 

But across the world, there is a growing realisation that choices are limited, and time is even more so.

And US trade uncertainty is likely to persist for several years.

The Indian apparel exporter told me that some of his biggest competitors in the UK market are Turkish manufacturers. 

For Indian firms like his to level the playing field, the UK tariff deal must be implemented swiftly.

For now, businesses must accept that last week was the final straw. They need to start thinking in terms of permanent strategy shifts, not ad hoc measures aimed at simply riding this out.

CORE NUMBER

Rs 4,784.32 crore

That’s how much FPIs pulled out from Indian equities between May 19–23, according to Mint. This marked the sharpest weekly selloff in two months, slashing May’s total FPI inflows to Rs 13,835 crore—down from Rs 18,620 crore last week. The biggest single-day exit came on Wednesday, with over Rs 10,000 crore worth of shares sold. Year-to-date, net FPI outflows now stand at Rs 98,516 crore. Analysts say the volatility is linked to global bond market turmoil and option pricing strategies, not India’s fundamentals. Leveraged funds may be exiting Indian stocks to manage global liquidity needs.

Rains Dampen Power Prices. Real-time electricity prices on the Indian Energy Exchange (IEX) crashed to record lows—some as low as 2 paise per unit—after unseasonal rains cooled Delhi-NCR and cut power demand, Mint reported. The Real-Time Market (RTM), where electricity is traded for near-instant delivery, saw average prices fall 22% year-on-year to Rs 3.69/unit in May. With rising hydro and wind supply and a 2% dip in consumption, power distribution companies are now substituting expensive thermal power with cheaper RTM buys. Although the RTM price changes do not impact consumer household bills, continued low prices could influence tariffs in the next fiscal year.

COVID Variant Watch. India has reported over 250 new COVID-19 cases in recent weeks, with health experts tracking emerging subvariants NB.1.8.1 and LF.7. These strains—detected in Tamil Nadu and Gujarat—are not currently classified as Variants of Concern by the World Health Organisation (WHO), though they’re behind recent surges in parts of Asia. In India, JN.1 remains dominant, accounting for 53% of cases. Crucially, international health authorities, including Singapore and Hong Kong, have told India’s Health Ministry that the circulating variants are neither more transmissible nor more severe than earlier ones, offering some reassurance despite rising infections. The situation remains under close surveillance.

Maharashtra Sets a New EV Goal. The Maharashtra government announced a new state electric vehicle (EV) policy with an aim to increase EV penetration to 30% by 2030. The state also announced that it will support R&D in battery technology and establish EV charging stations, in addition to offering tax breaks and incentives like a toll waiver for EVs. Previously, the central government also announced the goal of 30% penetration of EVs by 2030, though on the ground, EV adoption has been slow. In 2024, EVs had an 8% penetration in the market, with a yearly sales growth rate of just 2%. To meet its goal, an S&P Global report says India must increase that sales growth number to 3.8% every year. 

Top Companies See Decline in M-Cap. Last week, six of India's top ten most valued companies lost nearly Rs 78,166 crore in market capitalization, highlighting a downturn in investor sentiment. Reliance Industries, despite remaining the most valuable company, saw its valuation drop by Rs. 40,800.4 crore to Rs 19,30,339.56 crore. Tata Consultancy Services (TCS) experienced a significant decline of Rs 17,710.54 crore to Rs 12,71,395.95 crore, dropping to third place in market value rankings. Other companies like Infosys, Bharti Airtel, State Bank of India, ICICI Bank, Hindustan Unilever, and ITC also faced valuation losses. Conversely, HDFC Bank and Bajaj Finance saw gains, with HDFC Bank's market capitalization increasing by Rs. 399.93 crore to Rs. 14,80,723.47 crore.

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas