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

NEW DELHI: 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 US tariffs are likely to affect US 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 per cent target through 2026, driven by supply-side factors arising from higher tariffs and exchange rate movements. The US has imposed tariffs on about $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 US.

The report also noted that if all $45 billion worth of exports are hit by the new 50 per cent tariffs, India’s trade surplus with the US could turn into a trade deficit in the worst-case scenario. “However, we believe trade negotiations will restore confidence and improve exports to the US”, the report added.

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

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 per cent to 50 per cent, the report outlined that exporters are preparing for significant disruption. (ANI)