Mangaluru: If the tariff war escalates into a full-scale global trade war, it would have a collateral damage for the Indian economy as well, with the country’s exports taking a hit, current account deficit facing pressure and the GDP taking a setback, the ASSOCHAM has said.

“Instead of de-escalating, the trade tensions between the US and China with the fall out impact on other trading majors, have only escalated; spooking the global financial markets. The tensions in the market look quite justified, as the Trump move to levy tariff on trading partners could lead to a further retaliation against the US. Though India may not get much of a direct impact, the collateral damage could be in the form of adverse impact on the overall sentiment,” the chamber said.

ASSOCHAM Secretary General DS Rawat said, even if India chooses to take a responsive action on its imports, the impact on “our exports could be more even as the volatility in the foreign exchange rates would also rise”. He said, “we must have a backup plan which should include opening bilateral trade with key trading partners, taking precaution that we remain WTO compliant.”

In case the market confidence is further eroded, there would be an outflow of portfolio investment taking a toll on the dollar rates. Besides, as the US dollar is used as a safe haven in the midst of global uncertainties, its increased demand would put pressure on the Indian currency along with those of the other currencies of the emerging markets.