Trump tariffs to define global trade in 2025, India has fingers crossed
NEW DELHI : The liberal use of threats of tariffs by US President elect Donald Trump before his inauguration in January puts all forecasts of how world trade would shape up in the coming year difficult but Indian exporters are mostly positive about the prospects and their biggest worry stems from demand slowdown in bigger markets.
The World Trade Organisation (WTO) has forecast world merchandise trade to grow at 3% in 2025 after an expansion this year. Indian exports have been growing at the world average. In the January-November period the merchandise exports have been $ 400 billion, up 2% as compared to the same period of last year.
The Federation of Indian Export Organisations (FIEO) expects a slow start to 2025 and improvement in trade in the second half as the incoming Trump administration is expected to make efforts to end wars in Gaza and Russia-Ukraine. Trump’s tariff challenge will remain and will have to be navigated deftly.
The drop in freight rates in recent weeks suggests that either the demand has slackened or enough inventory has been piled up so fresh buying will be slow to come on stream, Chief Executive Officer and Director General of FIEO Ajay Sahai said.
Trump has said on many occasions that war in the Middle East needed to end sooner than later. On December 22 Trump announced that Russian President Vladimir Putin has expressed his interest in meeting him regarding the war with Ukraine.
“The end of conflicts in the Middle East will improve the situation in the Red Sea region making navigation through the Suez Canal possible once again,” he said. The container ships have been completely avoiding Red Sea routes since early 2014 and taking longer routes through Cape of Good Hope. The longer routes have led to longer travel times and higher freight rates. The resolution of the Russia-Ukraine conflict could lead to increased demand from Europe.
The biggest sector of exports, the engineering sector, expects to improve on this year’s performance in 2025 by a small margin but faces challenges from lower demand in Europe due to recession and wars, chairman of Engineering Export Promotion Council Pankaj Chadha said. Another challenge it sees is Trump tariffs and domestic prices of raw material as the government begins an investigation to put safeguard duty on steel. The US accounts for 21% and the European Union for 19% of total engineering exports.
This year engineering exports are expected to touch $ 125 billion, up from $ 109 billion in 2023-24. The growth despite the demand stagnation in US and Europe has come from newer geographies like West Asia and North Africa and Latin America.
The apparel sector is so far having a good year after a decade of stagnation. In April-November the exports have risen to 11.4% in April-November. The disturbances in Bangladesh have added to the sector’s growth with orders being diverted to Indian manufacturers. This trend is expected to continue in 2025 too but the challenge for the industry is to add capacity to meet the opportunity, secretary general of Apparel Export Promotion Council Mithileshwar Thakur said.
The emerging area of electronics exports is also expected to keep doing well in 2025 multinationals keep adding to their manufacturing capacity.
In 2023-24 exports had declined 3.1% on year to $ 437 billion. This year in April-November the growth has been up 2.17% to $ 284.3 billion.
“The exports are impacted by persisting geopolitical tensions including Russia-Ukraine Conflict, Israel-Palestine Conflict, and monetary tightening alongwith recessionary fears that have led to a decline in consumer spending across advanced nations and the consequential slowdown in demand,” the Ministry of Commerce officials say. Another factor was fall in commodity prices in Petroleum that contributed to this. Lower crude prices also led to lower value realization from the export of petroleum products. According to analysts the crude oil is expected to be in the $ 75 a barrel range in 2025 also. The lower base effect will kick in next year. This coupled with an increase in quantity will bring even petroleum exports in the positive zone.
In the last month for which trade figures are available the services exports outshined merchandise exports for the first time ever. In November services exports were $ 35.67 billion as against $ 32.11 for goods. Analysts had predicted services exports to outpace goods exports by 2030-. The indications are that it might happen sooner.
Between 2018-19 and 2023-24, the goods exports grew at a compound annual growth rate (CAGR) of 5.8 %, while services exports showed a growth of 10.5 %. At this rate, by FY2030, services exports are expected to reach $ 618.21 billion, edging past merchandise exports, which are projected at $ 613.04 billion, according to trade policy think tank Global Trade Research Initiative (GTRI).
Amidst all the uncertainty the exporters are expecting some final word on the Interest Equalisation Scheme which expired on June 30 and was extended for exporters from Micro Small and Medium Enterprises (MSMEs) till December 31. Exporters are asking for its extension for all exporters as was the case before. The scheme provided a 3% interest subsidy on pre and post shipment loans.
The 2024 also saw the government selecting five companies to run pilots for E-commerce Export Hubs which were first mooted in Foreign Trade Policy in 2023. These hubs around airports are expected to be rolled out in the first quarter of calendar year 2025.
To boost exports 2024 saw the signing of a trade agreement with the European Free Trade Association. In 2025 the expectations are that the FTAs with the UK and EU – that saw considerable progress in 2024 – might be concluded. Other FTA engagements with Peru, Oman and Australia will continue.
While the global situation still indicates the continuation of uncertainty of 2024, there are signs that some of the old issues will be settled and trade will be back to normal.