Trump's Tariffs May Push China Toward Currency Devaluation: Neelkanth Mishra
Global markets are in anxiety after the tariff action taken by U.S. President Donald Trump. Although the move has been minimized by the U.S. Treasury Secretary Scott Bessent, referring to them as 'baseline tariffs' and indicating they are negotiable, Indian economist Neelkanth Mishra has expressed a greater concern.
In an interview with NDTV Profit, Mishra, who is Chief Economist at Axis Bank, underlined that certain countries will have no option but to devalue their currencies. He particularly referred to China, drawing attention to the increasing balance of payments pressure resulting from capital flight and a decline in foreign direct investment.
As China's trade surplus narrows and the economic effects of the tariffs gain momentum, Mishra cautioned that the Chinese government might be compelled to devalue the yuan. This could start a general currency war, which would destabilize global markets and heighten financial uncertainty.
"The risk is in the domino effect. When one country devalues its currency, others may do the same, with potentially volatile consequences for international trade and investment flows", Mishra said.
He also highlighted the political character of the U.S. administration's trade policy, seeking to move away from multilateral towards bilateral trade agreements, with tariffs as leverage. Some of these tariffs would ultimately be eliminated through negotiations, but others would stay, fulfilling the twin objective of raising revenue and undermining the U.S. dollar's status as the world's reserve currency.
For India, though, Mishra expects the direct effect to be minimal. Exports to the U.S. account for a minor portion of India's GDP, and U.S. consumers are likely to absorb most of the cost. The bigger risk for India is the risk of a global economic slowdown, which could rattle investor sentiment.
Despite these concerns, Mishra maintains that India is relatively well-positioned, citing strong fiscal management, regulatory reforms, and the Reserve Bank of India's proactive monetary policies.
