New Delhi: As the US reciprocal tariffs hit global markets, Neelkanth Mishra, chief economist at Axis Bank, said on Monday that some countries like China will have no option but to devalue their currencies in the current scenario.
The global markets have been shaken by tariffs implemented by US President Donald Trump, as countries plan to respond to these strict trade measures.
Mishra mentioned China’s mounting balance of payments pressure, driven by capital flight and decreased foreign direct investment.
With China’s trade surplus narrowing and tariffs impacting the economy, he predicted the country might be forced to devalue the yuan.
The risk of a currency war is high, and once devaluation begins, the situation could spiral into an unpredictable environment.
Mishra told NDTV profit that this would trigger uncertainty in global financial markets, as the balance of trade between countries shifts and industrial policy measures like export subsidies and currency devaluation come into play.
The US administration's objectives are not purely economic but political, seeking to reshape global trade dynamics by moving away from multilateral agreements to bilateral ones, according to Mishra.
While some of the tariffs will likely be negotiated down, others may remain, serving as a tool for revenue generation and to address the US dollar's dominance in global trade.
The greater concern for India, according to Mishra, is the potential for a global economic slowdown, which could dampen investor confidence and affect financial markets, especially with India's low equity risk premium amid global uncertainties.
However, India is better positioned than many other economies, thanks to fiscal and regulatory easing, along with decisive monetary policy actions by the RBI, he noted.
In a bloodbath on the Dalal Street, the stock markets plunged on Monday following the global sell-off, as the trade war fear increased amid impending US reciprocal tariffs.
Trump has defended his controversial tariff policies, dismissing concerns over the economic impact. He said that the world leaders are "dying to make a deal" to negotiate the reciprocal tariffs.
"Sometimes you have to take medicine to fix something," Trump said, referring to the market volatility. Since the onset of his tariff policies, trillions of dollars in market value have been wiped off the books of US companies, with investors bracing for further fallout.
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