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US President Donald Trump's political setback in the midterm elections could reduce the risk of sudden tariff escalations and give India more room in trade negotiations with Washington, although trade-related uncertainty is likely to continue, according to a report by Emkay Research.
The report said the election outcome is unlikely to bring a major change in the overall US tariff structure but could alter Trump's approach towards trade partners. With Democrats gaining control of both chambers of Congress, the administration may face greater constraints on introducing new trade measures. "Fewer new escalation tools, more pressure to deliver consumer affordability, and deals before 2028" are among the factors that could shape Trump's trade policy following the midterm results, the report said. It added that future tariff escalations may increasingly require investigation-based action under Section 301 and Section 232, which could reduce the possibility of sudden tariff shocks for trading partners. For India, the report said the urgency of concluding a trade deal with the US has reduced. It noted that the proposed 18 per cent framework rate was never implemented, while Indian goods now face a lower 10 per cent Section 301 duty. The US has also lost its leverage under the International Emergency Economic Powers Act (IEEPA), according to the report. However, the report cautioned that trade-related risks have not disappeared. Sector-specific tariffs under Section 232, particularly on pharmaceuticals and electronics, remain a concern for Indian exporters. It also highlighted that any setback in diplomatic efforts involving Russia or Iran could bring back pressure on India over its oil imports. "Trade remains one of the few areas he controls alone, however, so headline volatility will persist even as the bias softens," the report said, indicating that Trump could continue using trade measures despite the changed political balance in Washington. The report said the midterm outcome could create a more favourable environment for India by reducing tariff uncertainty, but the possibility of fresh trade-related pressure remains. It also noted that softer crude prices and a weaker US dollar, alongside lower tariff volatility, could support the Indian rupee and improve the country's export outlook. According to the report, these developments could gradually reduce India's risk premium, although the relief may remain limited due to ongoing current account funding requirements and global financial uncertainties. (ANI)
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