'Trump's 25% tariff could be temporary': What’s the best-case outcome? Nomura explains

The US President Donald Trump's 25 per cent tariff against Indian imports from August 1, with an unspecified 'additional penalty' for India’s energy and military purchases from Russia, is likely to bring uncertainty to the stock market. 

Foreign brokerage Nomura said it sees the effective tariff rate at 20 per cent, taking into account the sectoral exemptions. This brokerage believes that the announced reciprocal tariff rate of 25 per cent may be temporary, and might settle lower, as negotiations will continue after August 1. 

The best-case outcome would still be tariffs in the 15-20 per cent range, which is disappointing, considering India’s more advanced stage of negotiations, it said.

"With Vietnam’s tariffs set at 20 per cent, India’s tariffs of 25 per cent or even a 15 per cent tariff (in the best case scenario), may not lead to any major trade diversion opportunities in the near term. Over the medium-term though, we still expect India to remain a beneficiary of the China plus one strategy, as diversification is a bigger driver of this trend," it said.

Nomura said sectors under ongoing Section 232 investigation such as pharmaceuticals, semiconductors & electronics are currently exempt from reciprocal tariffs, while existing Section 232 tariffs will apply on steel & aluminum (50 per cent) and autos – finished and parts (25 per cent).

Unlike other countries, India is in the process of securing a detailed trade deal with the US. Most of the other countries have secured very rough-cut deals, with some agreements largely verbal. 

"Indian government sources had previously suggested that an 'interim' deal was meant to be part of a more comprehensive trade deal that would take until end-2025 to agree upon. We believe that India has undertaken a more sensible approach - one that prioritises detailed evaluation of any trade deal instead of agreeing on a hurried deal based on a tight deadline," Nomura said. 

These negotiations will take time and very importantly, are still ongoing. The US trade delegation is set to visit India at end-August as part of this process. 

"Hence, the elevated tariffs announced by the US are unlikely to be permanent, in our view, although the best-case outcome would be tariffs in the 15-20 per cent range," it said.

Over the medium-term, Nomura sees India to be a beneficiary of the China plus one strategy. A broader supply chain reorientation to India was already underway long before there was clarity on the trade deal with the US, suggesting that this trend is largely unaffected by the final verdict on tariffs, Nomura said.

"Anecdotal evidence so far suggests most MNC interest is in low- and mid-tech manufacturing sectors including electronics (smartphones, PCs, components, semiconductor assembly and testing), textiles (cotton garments, knitwear) and toys (India: An emerging winner from China+1, 30 April 2025). Investment in the auto sector mainly reflects foreign firms pivoting to India to tap into the growing domestic EV market, while Indian exporters see an opportunity in solar cells," Nomura said. 

This, it said, is primarily a reflection of Trump’s higher tariffs on China, the US goal of a strategic decoupling from China, MNC focus to diversify supply chains and the government’s initiative to incentivise manufacturing. 

"We do not expect the latest tariff imposition to materially derail this trend, and we still expect India to remain a beneficiary of the supply chain shifts," it said.