April 23th Financial News

The White House has recently made headlines with its amendment to reciprocal tariffs and updated duties as applied to low-value imports from the People's Republic of China. This development signals a potential shift in U.S.-China trade relations, as ongoing discussions indicate progress towards a more comprehensive trade deal.

As the Biden administration navigates the complexities of international trade, the focus remains on fostering positive relations with key partners, including Japan and India. The latest updates suggest that while agreements are close, they may lack specific details that could impact their implementation.

Stay tuned for further developments as the White House continues to engage in discussions that could reshape the landscape of international trade.

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US Regulations and Their Impact

Discussions Within the EU

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The view of Nanjing Road East Pedestrian Mall, the main shopping street in Shanghai.

Source: CNBC

That’s the setup right now. The situation has been building for weeks, and it’s getting worse. The US government is all over the place under Trump’s second term, and nobody trusts what’s coming next.

Investors have started dumping the dollar and US Treasurys, and the numbers show just how bad it’s gotten. The dollar index has fallen more than 9% this year. The latest Global Fund Manager Survey from Bank of America shows that 61% of managers expect the dollar to lose more value over the next 12 months.

That’s the worst sentiment these managers have had about the dollar in nearly two decades.

Safe currencies surge as the dollar bleeds

The greenback’s collapse has pushed other currencies higher, especially the so-called safe ones. The Japanese yen is up by more than 10% against the dollar this year while the Swiss franc and euro are each up by over 11%, according to data from LSEG at press time.

These surges sound nice, yes, but they’re actually a problem. A strong currency makes exports more expensive, and for countries that rely on selling stuff abroad, that’s a problem they don’t need right now.

The Mexican peso has surged by 5.5%, the Canadian dollar is up by over 4%, the Polish zloty climbed by more than 9%, and the Russian ruble jumped by a huge 22% against the dollar this year, LSEG’s data shows.

But not all currencies are rising. Some are crashing hard. The Vietnamese dong and Indonesian rupiah dropped to their lowest ever levels against the dollar this month. The Turkish lira also hit a fresh record low last week. Even China’s yuan, which dipped to a new low two weeks ago, has only barely bounced back.

Adam Button, who works as chief currency analyst at ForexLive, said the weakness of the dollar is something central banks have been waiting for. “Most central banks would be happy to see 10%-20% declines in the US dollar,” he said.

Button pointed out that dollar strength has been a pain in the ass for years, especially for countries that either peg to the dollar or have big dollar-denominated debts. When the dollar is weak, it lowers their repayment costs. It also helps kill off imported inflation, since a stronger local currency means cheaper imports. That gives central banks space to cut rates and try to get their economies moving again.

Central banks hesitate as inflation, capital flight risks grow

But that’s just the upside. Button said the other side of the coin is the problem with exports. A strong local currency makes a country’s goods more expensive in global markets. That’s especially bad in Asia, which handles most of the world’s manufacturing.

This is why countries like Indonesia are unlikely to slash rates anytime soon. Their currency is already too unstable. But places like India or South Korea might still have some space to cut. The problem is that once rates drop, investors might move their money into US assets chasing better yields, which triggers capital outflows.

Switzerland is in a league of its own. Button pointed out that 75% of Swiss GDP comes from exports, and a strong franc has been a nightmare for the last 15 years. During global panic, investors always run to the franc, pushing it even higher. If this keeps up, Button said Switzerland might have no choice but to devalue.

Some countries are using the window of falling inflation. The European Central Bank dropped rates by 25 basis points at its April meeting. They said inflation is falling toward their 2% goal, so they’ve got room.

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The International Monetary Fund expects China and India — the world’s most populous countries — to play a bigger role driving the global economy, as it downgrades growth forecasts due to an escalating trade war.

The IMF cut its global projection for this year to 2.8% in the updated World Economic Outlook released Tuesday, down from the 3.3% it was expecting in January. The Fund’s team had to rapidly revise country forecasts due to high levels of uncertainty, after US President Donald Trump announced sweeping worldwide tariffs and then dialed some of them back, at least temporarily.

Compared to the forecasts it made in October, the IMF now expects a bigger share of growth to come from China and India, according to projections published this week based on purchasing power parity. Meanwhile, the expected contribution from the US was revised downward.

China will be the top contributor to global growth over the next five years, with a 23% share — up from 21.7% six months ago — according to Bloomberg calculations based on the IMF numbers published Tuesday. India is now expected to add more than 15% of additional output through 2030, while the US share drops to 11.3% from a prior estimate of 11.6%.

Global growth will remain concentrated, the IMF forecasts suggest, with some 80% of it coming from the top 25 countries.

Despite the lower projected US contribution, it’s still forecast to chip in a bigger share than the European Union — and the IMF sees that gap widening slightly on an annual basis in the coming years.

Source: Bloomberg Europe

The South Asian nation is well-positioned to withstand ruptures to global trade. When Washington announced its harshest levies yet on dozens of countries this month, India was insulated from the ripple effects by its relatively small export base. Trump’s proposed tariff on Indian goods — 26% — was also far lower than those imposed on manufacturing rivals in Southeast Asia, like Vietnam, where the threat of a 46% import tax fueled panic through factories making products for American buyers.

As the US and other large economies stare at recessions, India’s economy is still expected to grow more than 6% — slower than last year, but still the fastest of other major nations, buffered in part by its massive domestic market of 1.4 billion people. The US has prioritized India in its trade negotiations, with Vice President JD Vance touching down in New Delhi this week, where he met with Prime Minister Narendra Modi.

More broadly, as ties continue to fray between Washington and Beijing, India is using its relative strength to cast itself anew as the natural alternative for capital once bound for China — the next “factory to the world” and an emerging superpower that wants to play more of a role as global king-maker under Modi.

“That’s why we respect him,” Vance said on Tuesday. “He stands strong for India’s interests.”

That confidence reflects in India’s markets. Stocks and the rupee closed on Tuesday at their strongest level of 2025, and benchmark 10-year yields have hit a fresh three-year low. Last week, the benchmark NSE Nifty 50 Index erased all losses triggered by Trump’s announcement of so-called reciprocal tariffs, making India the first major stock market to recover — even if some of the rosiness is partly because a decline in share prices had taken place before Trump set off a slump in global equities in February.

Rahul Saraf, Citigroup Inc.’s head of investment banking in India, called the country “uniquely resilient” to the macro shocks of a new world order under Trump, pointing to the fairly unlevered balance sheets of local companies and a profusion of money with private equity firms and sovereign wealth funds ready to fund deals.

Over the past few weeks, as the trade war ripped at the seams of supply chains, India has already tried to pick up the pieces. Air India Ltd. is considering acquiring Boeing Co. planes rejected by Chinese carriers, according to people familiar with the matter. Alphabet Inc. is discussing shifting some of its global production of Google Pixel smartphones to India from Vietnam. And UBS Group AG is transferring its onshore wealth management to India’s 360 One WAM Ltd., a significant boost for the Swiss bank’s exposure in Asia.

For now, officials in the US and India also seem willing to overlook some of their historical differences, united by a desire to pull together as a check on Chinese dominance in the region. Modi and Trump have long enjoyed cordial personal ties, and the return of the Trump administration came as welcome news across much of New Delhi following the US leader’s defeat of Joe Biden in November.

Many in India’s government see in Trump a leader who would be easier to work with — less critical of India’s close ties with Russian President Vladimir Putin, and less demanding of accountability for its alleged involvement in extra-judicial killings of overseas activists.

“The strong relationship between India and the US cuts across all party lines,” said Manoranjan Sharma, chief economist of Infomerics Ratings. “Now that the US wants to distance itself from China, it’s natural that it will choose India as a partner.”

Months before the rollout of Trump’s levies, Modi’s tax bureaucracy was hard at work cutting tariffs on American bourbon, chemicals and cars. And unlike countries like Colombia, which responded with fury at the Trump administration’s deportations of undocumented migrants in shackles, India said it was the duty of all countries to combat illegal migration and accepted plane-loads of its migrants without complaint.

In a White House where getting meetings with the president and his top deputies is proving tricky for many world leaders, India has faced less pushback. Modi was among the first foreign leaders to visit Trump in February, when the two sides agreed to strike the first tranche of a bilateral trade deal by the fall. India is on a short list of countries the US is prioritizing negotiations with during Trump’s 90-day tariff pause, which ends in July.

Trump officials say the negotiations — which includes tariffs, but also Indian purchases of defense equipment and energy from the US — will be tough, and it’s unclear yet whether an agreement would allow India to escape the reciprocal duties.

However, Vance signaled this week that both sides had made “significant progress” toward the trade deal, with the broad outlines of a roadmap in place for further discussions.

Vance’s four-day trip — the first by a US vice president in over a decade — included dinner with Modi, touring Jaipur’s ancient sandstone forts with his family and visiting a sacred Hindu temple outside New Delhi. Days before his meeting with the vice president, Modi said he spoke with Trump aide and Tesla Inc. chief Elon Musk about potential areas of collaboration. If all goes to plan, Trump will also touch down in India in the coming months.

Even so, Trump 2.0 has been defined, at least so far, by its unpredictability. In the longer term, whether India succeeds in luring more business away from competitors will depend, partly, on how it plays its cards with the US. On the campaign trail in his first term, Trump frequently criticized India, calling it the “tariff king” and complaining that high trade barriers made it difficult for American companies like Harley-Davidson Inc. to do business on the subcontinent.

Arup Raha, the chief economist for Asia Pacific at Oxford Economics, cautioned against reading too much into the tea leaves. India’s historical weaknesses in manufacturing — whether from tough labor laws or paralyzing bureaucracy — mean that it’s unlikely to replace China as a manufacturing hub in the near-term.

Still, India has the right mix of strengths to make it a real player in today’s multipolar world, Raha said. In any case, there aren’t many better options out there.

“If you are looking for a large ally, that’s India,” he said.

Source: Bloomberg Europe