Can Musk make things worse for India?

This report is from this week’s CNBC newsletter Inside India, which brings you timely, in-depth news and market commentary on new power and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.

President-elect Donald Trump is less than a week away from being sworn in, and he’s promised a flurry of activity from day one.

A key policy — one that worries global investors but is also seen as beneficial for India — has been Trump’s promise to impose stiff tariffs on all imports from China.

Economists expect India to benefit from the US-China trade conflict as US firms try to diversify their supply chains.

“There are a number of ways this could play out, but it’s possible that India and Indonesia will be the biggest and most immediate winners from Trump’s tariffs — they don’t seem to be in Trump’s crosshairs, have fairly low geopolitical risks, and have large domestic emerging markets,” said Sheelan Shah and Marcel Thilliant of Capital Economics.

However, many analysts also predict that US manufacturing is unlikely to recover due to the tariffs alone. Instead, import taxes are likely to lead to a spike in inflation without economic growth – something Trump will want to avoid.

“Trump has seen how inflation-eroding the support of the Biden administration has been in the election and will need a disinflationary offset to the inflation that may come from tariffs and immigration restrictions,” said Thierry Wiseman, global FX and rates strategist at Macquarie. .

The latest whispers from Washington indicate that the tariffs are unlikely to be extensive. Scott Bessant, the hedge fund billionaire and Trump’s pick for Treasury secretary, is expected to outline his vision for US trade policy today. Senate confirmation hearing which reinforces the idea of ​​targeted duties.

However, another billionaire – Elon Musk – could have a big influence on America’s trade policy with China, which could hurt India’s economic growth.

Mask as a leader Teslahas huge economic influence over China through its automakers and wants trade policies between the two superpowers settled as soon as possible rather than allowing tensions to rise.

There is also the possibility that the Chinese government sees Musk as an operator who can help ease tensions between Beijing and Washington. China is now reportedly considering a plan that would have Musk, who also owns social media platform X, is acquiring TikTok’s US operations so that the program is not actually banned. TikTok has denied the reports and says it will not sell its operations in the US.

While Musk is not the only one with business interests in China, he is among the president-elect’s inner circle of close advisers and could potentially play a crucial role in a US-China trade deal.

“It would definitely be a negative outcome for India if the US did a deal with China,” said Gaurav Narain, portfolio manager at the London Stock Exchange. Indian Capital Growth Fund. “Companies are clearly exploring alternatives to China, which presents a significant opportunity for India.”

“However, if the deal is mediated, the need to find an alternative will disappear as China remains more competitive on price and boasts a complete supply chain,” Narain added.

The Tesla chief has also previously spoken publicly about his displeasure with India’s “world’s highest” tariffs on car imports. Far from supporting India, Musk, who now has Trump’s ear, could reignite trade tensions between India and the US over India’s import duties.

In an attempt to woo Musk, as well as partially deflect attention from its own tariff policy, the Indian government has temporarily cut import duties on electric cars to 15% in 2024 after keeping them at 100% for decades.

Still, economists believe Trump has surrounded himself with enough China hawks that even if a trade deal is struck, it will only cause businesses to delay their shift away from China, not stop it entirely.

“I think the flow of that investment (into India) could slow because companies are looking at it and thinking, ‘Oh, we’ve got four more years,'” said Michael Langham, India economist at abrdn asset management. . “I don’t see companies thinking so short-term that they don’t plan ahead for what is a longer-term trend, which is the diversification of supply chains.”

Others also suggest that in addition to the trade tariffs imposed by Trump during his first administration, the Covid-19 pandemic has also contributed to the corporate strategy of moving away from China.

“I think the reasons why companies are moving their supply chains are much deeper and therefore likely to continue,” Sonal Varma, Nomura’s India chief economist, told CNBC in late December. “The trade imbalance between the U.S. and China, I think, is a small part, actually, of a bigger problem,” Verma added.

There’s also evidence that Musk didn’t always get his way with Trump, either.

The Tesla chief endorsed Howard Lutnick, chief executive of investment bank Cantor Fitzgerald, as his choice for Treasury secretary. However, Trump instead chose billionaire hedge fund manager Bessent to head the US government’s Treasury Department.

Slowing inflation in India. Inflation in India in December was 5.22% annualizedreports the Ministry of Statistics and Program Implementation. The reading was below the forecast of 5.30% in a Reuters poll of analysts, and inflation slowed for the second month in a row. Softer inflation readings enable RBI to cut rates, against the background of slowing growth in the country.

China may delay exports to India. Sri S. Krishnan, secretary of the country’s Ministry of Electronics and Information Technology, said on Tuesday that the government had received feedback from industry companies such as Foxconn that capital equipment was detained in Chinese ports for several months. China has not announced any official restrictions, but the move may be unofficially driven by Beijing, Krishnan said.

The Indian government sees no problems with the supply of currency and oil. The Indian rupee has depreciated against the US dollar this week, but the government has enough foreign reserves to stop any excessive currency fluctuationssources in the government said. The government is also confident that India will not experience shortages or spikes in oil prices after the introduction of the US new sanctions against Russian oilof which India is one of the major buyers.

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Indian stocks appear to be recovering after a terrible start to the year. The Excellent 50 the index is down 0.5% this week, but has been on an upward trend for the past few days. This year, the indicator decreased by 1.41%.

The yield on 10-year Indian government bonds briefly rose 10 basis points in the past week, but fell to 6.75% on Thursday.

Neelkant Mishra, chief economist at Axis Bank, said on CNBC this week that the Indian rupee faces the problem of being “too stable.” In the last two years of Art the rupee’s volatility was more limited than other global currencies, Mishra said. That’s because the Reserve Bank of India has pursued a policy of stabilizing the currency — and, according to Mishra, it may maintain that position “much longer than is perhaps necessary.”

Meanwhile, Sumit Jain, senior analyst at CLSA, told CNBC that valuations of Indian IT sector names “have been on a tear for the last two years despite declining earnings.” However, Jain “cautiously optimistic” about the sector because India’s macroeconomic conditions are bullish.

Laxmi Dental, a manufacturer and exporter of dental products, listed on Monday. Watch for China’s GDP and retail sales figures on Friday.

January 17: China’s fourth-quarter gross domestic product and December retail sales, final euro zone inflation figures for December

January 20: Laxmi Dental IPO, China, decision on prime loan rates

January 23: Japan’s trade balance for December, Eurozone consumer confidence express data for January