India relatively safe from Trump's auto tariff scare, says new report

Global markets took a nosedive after US President Donald Trump announced a 25 per cent tariff on the auto industry, sending car manufacturers' stock prices into a tailspin. Industry heavyweights looked clueless even as the world's richest man, Tesla owner Elon Musk, admitted that it would hurt their fortunes.

Even as Canada and Mexico decried the latest round of duties, other countries are assessing how the latest international disruptions will affect them. Japanese Prime Minister Shigeru Ishiba said on Thursday that Tokyo would put "all options on the table" in dealing with Washington's announcement. European countries have also threatened retaliatory tariffs.

In its latest report on Friday, financial services major Morgan Stanley said that India, along with Japan, is relatively safe from disruptions due to strong internal demand.

“India and Japan...have robust tailwinds from domestic demand strength as an offset and relatively lower ratios of goods exports to GDP,” the report mentioned. (The ratio of goods exported to GDP is important as it determines the extent of the trade orientation of the economies.)

The report noted that the imposition of 25 per cent tariffs on autos and auto parts would affect Japan and Korea the most, as auto exports to the US account for 7 per cent of their exports. While Japan is home to Toyota, Honda, Nissan, Mazda, Suzuki, Subaru, Daihatsu, Mitsubishi, and Isuzu, major South Korean auto industry players are Hyundai Motor Group and KG Mobility (formerly SsangYong).

While the tariff on the auto industry will come into effect on April 2, the US is planning to impose duties on energy, pharmaceuticals, semiconductors, agriculture, copper, and lumber sectors.

“The potential implementation will affect almost all Asian economies directly, either via economy-specific or sectoral tariffs. But our key concern remains that elevated levels of policy uncertainty weigh on capex and trade – damaging the business cycle,” the report noted.

"At $245 billion, the US runs a reasonably large combined deficit (meaning it imports more than what it exports) in passenger vehicles, vehicles for goods transport, and auto parts (including EV batteries).

"Of this, Asia accounts for $115 billion or 47 per cent. Within Asia, Japan, Korea, and China stand out as the three economies that make up the bulk of this deficit. The three economies also rank second, third, and fourth in the top 10 economies with which the US runs the largest autos deficits," the report noted.

"For Japan and Korea, much of the deficit comprises vehicles and non-battery auto parts. For China, the majority of the deficit comes from EV batteries,” it said.