US President Donald Trump, known for his colourful vocabulary, has once again thrown global markets into a tizzy. After popularising “kerfuffle” in his first term to describe market reactions to tariffs, he’s now coined “Panican” for those supposedly weak-kneed individuals who fret over his trade policies. However, the markets’ reaction is far from panicky; it’s a calculated response to potential economic upheaval. The policy has bond markets acting as unlikely allies to equities, with treasuries plunging and yields surging.

Tariffs are a Double-Edged Sword

The bond market’s message is clear: Trump’s tariff tactics are not just denting America’s image of exceptionalism but also eroding faith in the dollar. Foreign investors, major holders of US treasuries, are seemingly preferring gold over the greenback. While Trump has offered a temporary 90-day pause for negotiations (excluding China), the fundamental issue remains. Tariffs, as the bond markets are reminding him, are no zero-sum game; they are a double-edged sword. The uncertainty lingers, even with the partial rollback, as the US-China trade tussle intensifies. The world’s two largest economies engaging in a tariff war will inevitably disrupt global trade flows.

India at a Crossroads

For India, this situation presents both challenges and opportunities. The immediate pain points include potentially dented earnings and a worsening of the already slowing economic cycle. However, there’s also a silver lining. The Reserve Bank of India (RBI) is well-equipped to manage exchange rate volatility as currency markets react to the US-China spat. Furthermore, easing oil prices, a welcome side-effect of global economic uncertainty, could help control inflation, giving the RBI more room to cut rates and stimulate growth. There’s also the prospect of India becoming a key re-routing destination for Chinese goods circumventing US tariffs. The commerce ministry has already alerted customs authorities to monitor import and export surges, a necessary step to prevent India from being misused as a transit point.

Gold Loan Jitters Grip Markets

The ripples of global uncertainty are also felt in domestic sectors. The recent fall in shares of Muthoot Finance and other gold loan companies, triggered by new RBI regulations, highlights this. While seemingly unrelated to the trade war, it reflects a broader market nervousness. Stricter rules for gold loans add to the cautious sentiment as investors assess the impact of both domestic policy changes and global economic headwinds.

Will Indian firms seize the opportunity amidst this global trade reshuffling? Much depends on how quickly trade-related concerns are allayed and whether domestic consumption can be reignited. Trump’s shock-and-awe tariff strategy is indeed backfiring, reminding everyone that in global trade, there are rarely any zero-sum outcomes. The question remains whether this kerfuffle will evolve into a compromise or escalate into a full-blown trade war, and how India will navigate these turbulent waters.