When the State Bank of India (SBI) warned that the U.S. economy could feel the effects of its own tariff rise, it caught many off guard. Under new rules, the U.S. has imposed up to 50% tariffs on select imports — particularly from India — and while the target is foreign exporters, the consequences are likely to ripple back to U.S. households and businesses.
What’s Going On
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The U.S. doubled certain tariffs to 50%, affecting labour-intensive exports from India such as textiles, jewellery, seafood and furniture.
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According to SBI’s estimate, U.S. GDP growth could fall by 40-50 basis points (that is 0.40%-0.50%) due to these tariffs and related inflation pressures.
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The cost-push effect: tariffs raise costs for goods imported (or that have imported components) and these higher costs are often passed on to U.S. consumers or businesses.
Why the U.S. Feels the Impact
1. Inflationary Pressure
Tariffs act like a tax on imported goods (or on imported components), pushing up costs. The SBI report pointed out that inflation could stay above the Federal Reserve’s 2% target through 2026.
2. Slower GDP Growth
When goods cost more, consumers buy less or shift spending, business margins get squeezed and investment may slow. The “40-50 bps hit” to GDP is a modest but meaningful drag.
3. Household Burden
Estimates suggest that U.S. households could see higher costs for everyday goods. For example, when imports cost more, either consumers pay more or businesses cut elsewhere (wages, investment) to compensate. (The SBI piece estimated a sizeable household burden for Indian goods exports scenario.)
4. Supply Chain Disruption
Many U.S. firms rely on intermediate goods or components from abroad. When tariffs make these more expensive (or less reliable), U.S. production and competitiveness may suffer.
The Bigger Picture & Risks
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The tariffs are targeted at foreign exporters, but the incidence (who really pays) often falls on domestic consumers or firms — either via higher prices or lower wages/investment.
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The move also risks retaliation or trade diversion: suppliers may shift to other markets or other suppliers may step in, which can erode the intended protective effect.
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The policy may help some U.S. producers in the short term, but at the cost of broader economic efficiency and possibly job losses or slower growth elsewhere.
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For the U.S. economy, the combination of inflation + slower growth is especially risky — it can bring stagflation (rising prices + stagnant growth) into focus.
What to Watch
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Inflation data: Will consumer price increases accelerate because of higher import/production costs?
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Consumer spending: If households feel the pinch of higher costs, spending may slow, affecting growth.
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Corporate margin pressure: How will U.S. businesses react? Will they absorb cost, outsource more, cut jobs?
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Trade flows & sourcing: Will U.S. importers shift to cheaper countries or domestic suppliers? What happens to global supply chains?
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Policy response: How will the Fed respond if inflation stays high while growth slows? Will there be fiscal or trade policy adjustments?
Conclusion
The 50% tariff move underscores a paradox of protectionism: while aimed at strengthening domestic industries or penalising others, it often leads to higher costs, slower growth and harder choices for consumers and businesses at home. For the U.S., even if the hit to GDP is modest (40-50 basis points), the cumulative effect — especially if sustained or expanded — could be much larger. Policymakers and market watchers will need to keep a sharp eye on inflation, growth and trade-chain shifts in the months ahead.