CEA V Anantha Nageswaran sees three-tiered effects of Donald Trump's tariffs: ‘Not just about exports to US’

Chief Economic Advisor V Anantha Nageswaran has a warning about US President Donald Trump's reciprocal tariffs. According to India's top economic expert, the Trump tariffs do not have one simple effect, and the impact will be more layered. The reciprocal tariffs are expected to have first, second and third-round effects, the CEA said, adding that these factors will impact growth.

One needs to look at the first-round, second-round and third-round effects, Nageswaran said in an interview with The Indian Express.

“It is not just the exports to the United States, but to what extent you are able to absorb and to what extent the consumers are able to absorb in the US. Is there a combination of the two that works? That is one part,” he said.

The second round of effects concerns countries that have a higher share of exports to GDP, according to the CEA.

“The second part is, if there are other countries who are affected by this, are you better off or not. Because if there are other countries which face a fairly difficult tariff structure and they have a much higher share of exports to GDP and if they are affected, then our exports to those countries can also be affected,” he said.

“In that sense, it is difficult to talk about this in relative terms,” Nageswaran added.

The reaction in the financial markets will also have effect on consumption, which will be the third round of effects.

“Then, the third thing will be, of course, the continued reaction in the financial markets which will also have its own spillover effect on sentiment and consumption because of the wealth effect it creates on the downside. So these are all the factors that will, in some combination or the other, have an impact on the growth outcomes this year,” Nageswaran told the newspaper.

Trump tariffs: CEA sees silver lining

Even though reciprocal tariffs may have adverse effects, Nageswaran saw a silver lining in the situation, which is the reduction of the energy price.

“Whether we like it or not, the external environment is a given. The other lever is the silver lining in the situation — the energy price. Right now, crude oil prices have dropped quite a lot,” he said.

From a policy perspective, he recommended lowering the cost of doing business to absorb tariffs.

“From the policy perspective, we need to make it easier to operate in the domestic economy, lower the cost of doing business, which will also help absorb the tariffs. Deregulation is something we have spoken about,” he said.