US Tariff Impact: How to Trump-Proof Your Portfolio

Stock Market News | On Wednesday, US President Donald Trump shook things up on the global trade stage by announcing some major reciprocal tariffs. Effective April 5, 2025, a 10% universal tariff on imports from all nations will come into play, with additional "reciprocal" tariffs on select countries starting April 9. 

While these tariffs are framed as a way to address America's trade deficits, they could end up driving more global economic fragmentation and sparking some serious geopolitical changes. Just a few weeks ago, the Organisation for Economic Co-operation and Development (OECD) had already downgraded global growth forecasts from 3.2% in 2024 to 3% by 2026. Now, with Trump’s tariff hikes in play, the global economy is likely to slow down even further, and growth across the board is expected to take a hit.

The Indian Perspective

Trump has introduced a 26% reciprocal tariff on exports to the US, calculated as half the 52% average tariff (and non-tariff barrier costs) India imposes on imported American goods. However, both the White House’s official order and the Indian commerce ministry’s release peg the rate at 27%.

This move is a big blow to the Indian economy, especially since the US accounts for 18% of India’s exports. Certain sectors are going to feel the pinch, as their products are now going to be pricier in the US market. That leaves businesses with two tough choices: (1) absorb the additional cost, which will eat into profits, or (2) pass it on to consumers, potentially hurting demand.

Here’s a closer look at the sectors most vulnerable to these tariffs:

• Gems & Jewellery: A Significant Setback

The gems and jewellery sector, which contributes around $9.9 billion in exports to the US, is set to face a major blow. With the effective tariff on Indian gems jumping from 5-5.7% to a steep 26%, this sector is likely to see a drop in demand. 

In FY24, the US accounted for about 18% of India's total exports, and a hefty ~30% of exports in this sector, making this an especially hard hit.

• Textiles & Apparel: A Mixed Bag for Indian Exporters 

Textiles and apparel are another big piece of India’s export puzzle, and these sectors will also feel the pinch. India exported textiles worth $9.6 billion to the US in FY24, about 28% of the country’s total textile exports. 

But it’s not all bad news—the tariffs on India’s competitors—China (up 34% in addition to the tariffs already prevailing) and Vietnam (up 46%)—are even higher. This could offer some cushion, but the overall impact will still be negative.

• Auto Sector: Bumpy Road Ahead

The auto industry is headed for some rocky roads, with a 25% tariff on foreign cars and auto parts. Indian automakers like Tata Motors, which rely heavily on US sales, are likely to see a dip in their profits. Auto parts exporters, who shipped about $3.67 billion worth of goods to the US in H1FY25, will also feel the pain.

Meanwhile, companies like Maruti Suzuki and M&M are likely to remain relatively insulated due to their strong focus on domestic production and sales. 

• Pharma: Potential Tariff Risk Looms Large 

The pharma sector has managed to dodge the worst of Trump’s tariffs so far. However, President Trump has hinted that pharmaceuticals could be targeted next. “Pharma is going to be starting to come in at, I think, a level that you haven’t really seen before,” he said. 

In terms of trade, India imports pharmaceutical products worth nearly $800 million from the US, while exports to the country total around $8.7 billion. 

• Electronics: A Silver Lining for India?

Not all is doom and gloom, though. Some sectors, like electronics, could actually benefit from this new tariff environment. For instance, Indian electronics exports to the US hit $12.6 billion in 2024, making up 31% of the country’s total exports in this sector. 

While the US tariffs will have some effect, India could benefit as China—responsible for 83% of US electronics imports—faces a hefty 54% tariff. This opens up a chance for Indian companies to grab a slice of that market share.

Stock Markets React: What Investors Should Do

Unsurprisingly, the stock market has been on edge since Trump's tariff announcement. Tariffs usually push up inflation and can slow down growth, making investors nervous. A day after “Liberation Day,” Wall Street had its worst day since the Covid-19 pandemic, with the Nasdaq, S&P 500, and Dow taking hits of 6%, 4.8%, and 3.9%, respectively. 

We saw the ripple effect in India too on April 4. The Sensex took a 930-point dive, and Nifty 50 fell below 22,950. 

That said, there’s a silver lining – the worst might already be behind us. Instead of the feared full-blown 1:1 reciprocal tariff, Trump took a more balanced approach. Plus, both India and the US are keen to fast-track talks on a bilateral trade agreement (BTA), which could give a major boost to trade. These discussions could present a good opportunity to sort out the US-imposed tariffs or at least tweak them in a way that benefits both parties. 

Looking for Stability? Focus on Domestic-Focused Sectors

For investors, it’s time to stay alert and watch how the economic landscape evolves, especially with quarterly earnings around the corner. Pay close attention to management commentaries – their insights will provide valuable perspective on how businesses are adapting to the new trade environment.

In the meantime, Banking and Financial Services, especially those with limited international exposure, could offer some stability in these choppy waters. Sectors that are more domestic-focused like Footwear and Hotels could also hold up well. 

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