Fitch economist warns of sharp global growth decline amid US tariff hikes

The world economy is set for a major shock as the United States moves ahead with sweeping tariffs on key trading partners. The unexpected speed and scale of these tariff hikes are likely to slow global growth, disrupt trade flows, and put pressure on businesses worldwide.

“This is a huge and rapid change in US trade policy that’s going to reverberate around the planet,” said Brian Coulton, Chief Economist at Fitch Ratings. He noted that global growth forecasts have already been downgraded from 2.6% to 2.3%, with US growth projected to slow significantly to 1.5%. “That’s a really big slowdown,” he added, warning that unemployment is likely to rise as well.

Uncertainty surrounds the exact structure of these tariffs, but reports suggest they will be broad-based rather than product-specific. Richard Rossow, Senior Adviser at CSIS, pointed out that India is expected to be among the hardest-hit countries. “Every single review that I’ve ever seen shows India at or near the top of the list in terms of countries that are going to be hit,” he said. However, there is speculation that India is working on a trade package to soften the blow. “A deal could be ready in the spring to mitigate the impact,” Rossow noted.

India’s exposure to US tariffs stems from its higher tariff rates on American goods. US exporters face an average tariff of 12.4% in India, compared to the 3.7% levied on Indian exports to the US. This trade imbalance makes India a prime target for retaliatory measures. Coulton highlighted that while India is less dependent on trade than China or Vietnam, it is still vulnerable. “If India really addresses Trump’s concerns and brings down import tariffs aggressively, the question will be whether it does so solely for the US or adopts a broader trade liberalisation strategy,” he said.

Beyond immediate tariff implications, there are concerns about secondary effects. India could see an influx of diverted exports from other countries losing access to US markets, impacting domestic industries. Alternatively, India could attract more foreign investments if it secures preferential access to the American market.

Anup Wadhawan, former commerce secretary, remains cautious about how this will unfold. “There are several signals suggesting that the most favourable scenario would be one where these reciprocal tariffs are not imposed on India,” he said. However, if tariffs are enforced, India will have to choose between retaliation and negotiation, possibly navigating a dual-track approach.

Ironically, the US economy itself may suffer the most from its own tariff policies. Wadhawan warned that as global trade shifts away from the US, American businesses could lose market share. “Expanding this approach to the EU and other major trading partners may prove unsustainable,” he said. He also pointed to the complexities of tariff enforcement, including Rules of Origin requirements to prevent third countries from exploiting trade routes.

Watch the video for more