Markets Take A Pause As They Digest Tariffs
The fate of the markets or at least key consumer facing stocks for the next few days will depend on the outcome of the GST Council Meeting
On Episode 667 of The Core Report, financial journalist Govindraj Ethiraj talks to Indrani Bagchi, CEO, Ananta Aspen Centre as well as Cameron Johnson, partner at Tidalwave Solutions and a global supply chain strategist.
SHOW NOTES
(00:00) Stories of the Day
(00:41) Market pause
(04:33) Bonhomie and camaraderie in Tianjin, now what?
(13:05) The new global supply chain dynamics
(27:19) Tesla has received only 600 orders since launch in mid July
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Wednesday, the 3rd of September, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes,
The stock markets take a pause as they digest tariffs.
Bonhomie in Tianjin, now what?
The new global supply chain dynamics.
And Tesla gets only 600 orders since its launch in India in mid of July.
The Markets Pause
The fate of the markets are at least key consumer facing stocks for the next few days will depend on the outcome of the goods and services tax or GST council meeting that starts today and goes on till tomorrow.
Since so much is dependent on this meeting and the final reduced tax rates that we are set to see on a host of daily items as well as discretionary items like air conditioners to small cars, the details are worth visiting. That's at least part of the meeting. Now this is the 56th goods and services tax council meeting and could see one of the biggest tax overalls since the regime was rolled out just a few years ago in 2017.
The meeting will be chaired by union finance minister Nirmala Sitharaman and attended by finance ministers from all states and union territories. Decisions have to be taken by consensus or weighted voting. The centre has 33%, the states have 67%.
You will recall that the prime minister Narendra Modi at his independent state speech on the 15th of August promised a reduction in goods and services tax rates as a Diwali gift. Diwali is on the 21st of October, that's next month. Back home, the stock markets were firm when they opened in the morning but then they gave up their gains possibly due to profit booking, possibly due to some nervousness in the era of tariffs.
Sentiment was also pulled down by a nifty futures and options expiry adding to volatility in the second half. The Sensex was down almost 752 points from its intraday high before touching a low of 80,008 and then finally closing down 206 points to 80,157. And the nifty was down 45 points to close at 24,579.
The broader or wider indices were higher though. The nifty mid cap 100 was up about 0.3% and the small cap index was up about 0.5%. So while the benchmarks were down, the mid caps and the small caps were up. Now, as is the case these days, the stock markets may not be the best place to measure the economic temperature given the sheer pressure of capital flows including in India.
Gold prices crossed the $3,500 per ounce level to hit a record high on Tuesday amidst mounting expectations for the US Federal Reserve rate cut and that in turn increased demand for gold because as interest rates go down, investors switch to assets like gold which are not interest rate bearing but show healthy capital appreciation. Remember, bullion has now gained 32% this year. Spot gold was steady at about $3,476 per ounce on Tuesday morning and the high was $3,508 earlier in the session.
The rupee was also higher on Tuesday but came off the day's high as importer demand for dollars wiped out the recovery which was there earlier in the session according to Reuters with the currency ending at 88 rupees 15 paise which is slightly up from Monday's lows of 88 rupees 19 paise. Traders told Reuters that there has been strong demand from oil importers pushing the USD-INR pair higher. Elsewhere, oil prices rose on Tuesday as concerns about supply disruptions grew amidst an escalation of the conflict between Russia and Ukraine along with speculation that OPEC, that's the Organisation of Petroleum Exporting Countries Plus, will not raise output at a meeting on Sunday.
Brent crude was up almost a dollar and 17 cents and was quoting at around $69.30 or just over $69 Tuesday afternoon according to Reuters.
India, China and Russia
So the photographs are on point with Prime Minister Narendra Modi exchanging laughs with President Xi Jinping of China and President Vladimir Putin of Russia. The Shanghai Cooperation Organisation or the SCO meeting over the last two days has had some positive outcomes including for India and we'll come to that earlier. Possibly after seeing that global coverage around that meeting in Tianjin in China, US President Donald Trump wrote on Truth Social that India has offered to reduce its tariffs on US goods to zero.
While calling the US relationship with India one-sided, he said that they have now offered to cut their tariffs to nothing but it's getting late. They should have done so years ago. US Treasury Secretary Scott Besant who's been baiting India off late played down the idea that US tariffs were bringing countries like China and India together describing the SCO summit as performative according to Reuters.
I reached out to Indrani Bakshi, CEO of the Anantha Aspin Centre and foreign affairs columnist with the Times of India who also emphasised in her latest column the importance of Modi's travels in this round where he first visited Japan and then on to China over the weekend for the SCO. I began by asking her how we should be interpreting the bonhomie and what that could mean going forward.
INTERVIEW TRANSCRIPT
Indrani Bagchi: One is a sense that these three countries are frankly the biggest targets of Trump's, shall we say, fury. Russia is an adversary or at least an adversary for America, if not an adversary for Trump. China is definitely the adversary.
India wasn't an adversary, but America has made us an adversary. So to that extent, I think it seemed like China and Russia were saying, great guys, come join the group. But that I think was one of the signals.
China has definitely reached out to India for some time now and India has also responded. India is not going to let Russia, the Russia relationship down. Putin has already announced that he will be here in December.
All said, and Modi is of course making his statement on multipolarity, on non-hegemonic politics, and basically also, very frankly, a very clear signal into the West.
Govindraj Ethiraj: Okay. If we were to look at what the US response could be to this, at least this part of it, now the initial response seems to be that it's affirmative, going by Scott Besant's statement. Should one leave it at that or should one interpret further at this point?
Indrani Bagchi: No, I think Scott Besant isn't taking it a little too, it's too much of a facetious remark, because I do see there being a sense in the Indian system that a little bit of balance is called for, that America under Trump no longer is the kind of reliable ally that we had expected it to be, or rather we had we had believed that they had become. I mean, after 25 years of such deep and broad engagement, one would imagine that the other side knows you really, really well. But that is not the case.
I mean, we have become a part of their domestic politics, we have become a part of their foreign policy, we have become a part of their trade policy, and in a very, very negative way. To be fair, I mean, India does a whole lot of things that it should not be doing. But in this instance, actually, India is not to be blamed in that way.
I mean, we haven't done anything different that we've been doing for the last God knows how long. So I think there is an interest in the Indian system, that while we were de-risking from China and began to balance China, maybe we balanced China too much. And we now need to restore some of that balance.
So we are balancing against the Americans, we have already balanced against Russia. So that's really not a point. But yeah, I think it's a little more than being performative.
Govindraj Ethiraj: Got it. Now, on the India-China, Russia business part, I guess oil imports will continue as things stand, or are likely to continue. So we're going to continue to do business with Russia.
And we're also obviously not going to be coming into pressure from the United States. Now, in India-China, imports of several categories of goods were stuck, which have resumed, as I understand, including those tunnel boring machines and fertilizers and rare earth magnets. So is there anything else, I mean, in terms of return to normalcy in terms of business relationships between India and China, or a continuity?
Indrani Bagchi: Yeah, I think we'll see investments from China being allowed by India. Maybe not in most of the strategic sectors. But there is an assessment in India that we allow less Chinese investment than even the Americans.
I mean, the Americans allow much more Chinese investment. And I think that's going through their heads right now. If Trump continues on this mad trail that he is on, will it affect American investment into India?
It might, even if certainly 50% tariffs continue. We do need to look, I think, for other sources of investment, other sources of capital. So I think that's something that they are thinking of.
How far this will be put into practice, how much of the press note three will be actioned, I don't think they have completely thought this out yet. But I think that journey has started.
Govindraj Ethiraj: Right. So you're saying we are opening our doors once again to Chinese investments, and this time also thinking of it or looking at it as a hedge to other American investments, which may or may not come at the same intensity as before. Okay, last question.
So all of this is linked in some ways to the original tariff war that Donald Trump started. India at this point is still at 50%. And two questions, sub questions.
One is, is this likely to affect and it could affect negatively, for example, the prospect of let's say some deal may not be that easy, given the fact that India has not really gone ahead and demonstrated friendship with Russia and China. The other is that it may open up things further. So how are you reading this?
Indrani Bagchi: A couple of things. One is, if I may sort of go on from my last answer as well. It's not only China that we are looking at as sources of investment.
I mean, I said this in the piece that I wrote this morning, but I do believe that frankly, he had a much more substantive summit with Ishiba in Japan. It didn't have all that light and sound of it. But it was honestly a much more, and the Japanese are, they understand they are now investing in critical technologies in India, manufacturing of magnets with the two of them, because Japan is the only other country that has the technology to manufacture magnets, to do rare earth magnets, but they don't have the capacity anymore because, you know, and also Indian investment, moving Indian investment to many companies in Japan, many sectors in Japan. That's actually something that we should be looking out for a lot more.
A third one, and you will see that as the Prime Minister of Singapore comes in tomorrow morning. You will see Singapore coming up as it is already the largest source of your FDI, but you'll see a lot more investment coming in from Singapore. So you're spreading out your investment avenues from a number of countries, which we may have been a little less interested in as we were having this honeymoon with America.
Govindraj Ethiraj: Right. And I think to your point that basically Modi went to Japan before he went to China, therefore the strategic importance of that, and also building relations with the new political dispensation in Japan, which according to you is going to be good for Indian investments coming into India.
Indrani Bagchi: Yes.
Govindraj Ethiraj: Great. Indrani, thank you so much for joining me.
Indrani Bagchi: Thank you, Govind.
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India's government hasn't officially responded to Trump's remarks, but Commerce Minister Piyush Goyal said at an event on Tuesday that both sides continue to engage to reach a trade agreement.
He said that we are in dialogue with the United States for a bilateral trade agreement. There are no formal talks taking place between negotiators right now from both countries after the US team cancelled a trip to India in August. Informal communication channels are open though on both sides.
The Supply Chain Conundrums
A recent Economist article said global economies have been more resilient since 2011, growing at 3% annually because of mature and smart supply chains which are absorbing many of the economic shocks including those caused by wars. This of course is outside the pandemic period.
Now Trump's tariffs are of course a newer and bigger set of problems which the global supply chain industry is struggling or fighting to find solutions for, both for American importers as well as exporters in different parts of the world, including in India. At the sidelines of the Elara India Dialogue 2025 in Mumbai's BKC, I spoke with Cameron Johnson of Tidal Wave Consulting based out of Shanghai and a former manufacturing executive who set up and ran a carbon fibre plant in China. He's been talking to both companies and policymakers in many countries in the region on how to respond to the chart of challenges and what the path ahead could look like.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Cameron, thank you so much for joining me. So, it's been several months now since April 2nd, 2025 and the big tariff, reciprocal tariff announcements switched to other kinds of tariffs and a new set of tariffs now, particularly for countries like India. So, if you were to look back at the last few months, what's changed and what's not?
Cameron Johnson: I think what's changed is we've seen kind of an end to the post-World War II global trading system. What we knew just a few months ago is now completely different. I wouldn't say it's every man for himself in terms of trading, but what you've basically seen is the U.S. blow everything up and actually force countries now to collaborate together where they wouldn't have before.
Govindraj Ethiraj: Okay, if you were to look at industries in specific, and I'll give you a little background to this. So, for example, I was talking to someone in the apparel industry or representatives of the apparel industry a few weeks ago. I think many of them were expecting things to even out, you know, some solution to be found.
And I'm guessing that must have been the case or would have been the case with industries or companies world over. People were thinking that, you know, Trump will come to a census, so to speak, and then we'll have some kind of return to the old order, but that's not happened. So, one is, I think, would you feel that companies may have lost time in this period?
Secondly, whether they've lost time or not, what are they doing today? And is that sufficient?
Cameron Johnson: Yeah, I think to your point, the assumption that cooler heads will prevail and that a more economic-friendly environment will be created has essentially not happened. It's actually politics, national security, that's what's driving the bus, and business is just kind of thrown by the wayside with that. I think to your point, what you're seeing businesses now doing is they are starting to wake up, oh, now I actually do have to have more contingency plans.
And maybe their contingency plan actually was for a war or maybe a pandemic, but nobody really had contingency plans for broad-scale tariffs globally. And so you are seeing companies that were waiting, I'd say up until maybe just even the summer, to hopefully there'll be some trade deals, hopefully a few things will get moving so we can move forward. You did see a bit of that out of Europe, Japan, and Korea when they signed the agreements with the US.
But ultimately, businesses were waiting for that. Those that have not had success in that, think of India as an example, Brazil, are really stuck. And so you are seeing businesses try to play catch-up a bit.
Now we have to move our markets to somewhere else. Now we have to figure out how we deal with the tariffs in the US. And all of this has kind of thrown things into chaos, where you do get a mix of companies that did have plans or were able to be more nimble, and companies that are now trying to play catch-up and are behind in the market.
Govindraj Ethiraj: So I'm going to come to what the second order effect of all of this could be in a moment. But tell us a little bit about yourself. I mean, you've been in manufacturing, you set up a carbon fiber manufacturing factory in China, and that gave you the insights and understanding of how supply chains work, and then you got interested in it enough to now advise other people.
Cameron Johnson: That's right. I mean, I'm originally from the US, but I went to China at the age of 19, basically, for a year and never left. And so, you know, a lot of my journey in my career has been outside of the, or primarily outside of the US.
In China, to some degree, East Asia, and now with supply chains all over Asia, my remit is essentially from the Middle East to Japan, to Mongolia, to Australia. So I cover most industries all over the continent. And to your point, it's been fascinating because I've also seen the evolution of how manufacturing has evolved and supply chains have evolved, particularly in Asia.
You know, manufacturing 25 years ago was, you know, you have some machines and you make products and then you put it on to the, you know, send it to the next guy and then they will use it as part of their input and it kind of goes down the chain. And now we don't see that anymore. Now we see an actual comprehensive supply chain where you have, it's not just suppliers, but it's also governments, it's logistics firms, its infrastructure plays, all of this is now working together.
So these concepts of supply chains and integration have actually evolved quite rapidly over the last two decades.
Govindraj Ethiraj: And as you come to the present today, I mean, would you say that things are now so embedded, as people say, I mean, and you yourself argue that it takes 15 to 20 years to set up the ecosystem for most manufacturing systems, or do you feel as you stand here and look ahead, the timing and the speed at which, let's say, new manufacturing capacity can be created, supply chains can be set up, is there any hope?
Cameron Johnson: It does take quite a long time to have supply chains develop. You can set up a factory and a manufacturer in just a couple of years, but that doesn't mean you have the electricity access, the raw material access, the people and so on. So one of the things we've seen, how do you accelerate that process?
But one way countries have done that in companies is they try to replicate what they have somewhere else. So for example, Chinese firms, when they went out of China, particularly Southeast Asia, they tried to replicate what they had in China in Southeast Asia. So they would call their supplier and say, you're supplying me this in Shenzhen, you now need to move to Ho Chi Minh and supply me the same thing.
So essentially, you saw this replication and companies move together. So supply chains evolved that way. And actually, it's like pouring gas in the oven on fire.
When you're all in it together and you can co-develop and you're solving problems rapidly, you actually see you can accelerate that process. The challenge becomes when you have different barriers. Maybe you don't have enough infrastructure, for example, power, maybe the government support isn't there.
Maybe you just don't have the workers. So there are ways you can accelerate that process. But generally, it's safe to say that supply chains, an effective supply chain, probably takes a minimum of 15 years to build out effectively.
Govindraj Ethiraj: Right. And the move from China to some of these neighboring countries, including Vietnam, was also driven by tariffs in some ways, isn't it?
Cameron Johnson: That's correct. Originally, there were some companies that moved, you know, Adidas and Nike, for example, because the labor cost in China was continually increasing. But after Trade War 1.0 was launched and all the tariffs came in, you saw companies in mass moving to Southeast Asia. It's kind of like a balloon. If you press the balloon down in one area, it'll rise in another. That's essentially what we saw.
And that's why you see a replication of a lot of these ecosystems all around the region is because as that happened, everybody was affected by the tariffs. It wasn't just foreign firms or Chinese firms, everybody. And so they had to figure out how to replicate that and ultimately insulate ourselves.
So that was ultimately the creation of China plus one strategy, right? A primary manufacturer in China, secondary facility somewhere else, particularly Southeast Asia, Vietnam. And you have seen some capacity stay in China, for example, high end products, because the ecosystem, but also the technology, the know-how, and that hasn't moved.
What has moved is more of the lower end, but also products that maybe we're not so sure about, right? Maybe the cost is variable. So how do we move forward with that?
Well, we're going to send it to Vietnam where we know the price and structure is already low. So if there is an issue with it and we can't make it for some reason, it won't affect our business overall.
Govindraj Ethiraj: Right. And looking at it from the standpoint of countries like India now, areas where India faces the most threat because only about half is tariffed as of now, electronics is not tariffed because Apple has a side deal, pharmaceuticals as a sector is exempt right now. We don't know what will happen later, but it's exempt right now.
But the industries that are really affected are gems and jewelry, apparel, leather, and these are all very labor intensive. What would you say or how do you think manufacturers should be looking at their future right now?
Cameron Johnson: I think one is what products are, do we know that they are constantly ordered no matter what, right? And I mean, you know, there are sweaters or different styles that every year, for example, we know at Diwali, you can order, right? And companies and businesses, for example, retailers can support those small businesses by putting in long-term contracts.
Hey, we know every year we need 25,000 of these. We're willing to put in half an order now. So you have that stability, you have that runway.
Part of the challenge overall with businesses, what's my runway look like? What do my orders look like? Not just today, but six, 12 months from now.
And other things you can upgrade machinery that doesn't quite help with some of the labor costs, right? And I think ultimately as well, banks need to be a little bit more friendly to small enterprises, whether it's through bridge financing or if companies do want to expand or they do want to try to innovate, the banks are a little bit more or a little less conservative in understanding that and helping businesses get access to the financing when they could do that.
Govindraj Ethiraj: And you feel that people should be going back to basics in some ways, you know, acquiring land, figuring out all the infrastructure and actually setting up some of those components to those supply chains. In this case, let's say a pattern.
Cameron Johnson: Potentially, I think one of the things is where's your raw material coming from? If you have a local source of raw material, it makes it much easier. Are the threads made here?
And how is the cotton processed? And when you have access to that, you actually have more flexibility. You can also do just kind of a JIT, just-in-time production method.
So your cash flow is improved. You could get land, you could buy machinery, you could upskill, but that also comes with the risk. If you don't have that runway or you're not talking to your customers and saying, I'm going to put this in, this new capacity and to make this new product, are you interested?
Can you put in a pre-order now that if I start making it, you'll take the order? These are some of the ways you can buttress some of those effects. Companies generally don't do greenfield investments or build out unless they have some runway or some visibility ahead.
And this is one of the things we're seeing, particularly in those industries, leather, apparel, carpets, for example, jewelry, is that we don't know what the runway is. So it's very difficult for them to maneuver. And that's why some of the banks can be a little less conservative at the moment to help companies get through this and also allow companies to really talk with their customers and suppliers to figure out how are we going to maneuver here?
How do we actually make this work? Because if I go out of business, you're also going to lose business. So let's figure out how to make this happen.
Govindraj Ethiraj: And as you talk to suppliers and vendors around this region, are you getting a sense that they're now in better control of what's going on or is there still panic? What are the kind of reactions you're getting?
Cameron Johnson: Yeah, I think it's a mixed reaction. On the one hand, there is panic because we don't know if there's going to be more tariffs or there's going to be less tariffs. Also, now that we have to look for non-U.S. markets, what does that actually look like? Well, the products that the U.S. takes, well, Europe now takes that or the U.K. I understand, you know, Europe and the U.K. are negotiating with India on potential trade agreements.
Govindraj Ethiraj: India and the U.K. already have one just now.
Cameron Johnson: So will they take the same products? And if they do, then part of the problem is solved. You can just kind of quietly shift your focus to other markets.
I think businesses can also look at what tweaks can I put into the product to actually make it more favorable to other markets. The U.S. market is a very unique market. Sometimes their tastes are not what everybody else wants.
And so for the biggest bang for the buck for the local business, it really is looking at where we can ship these products to other markets? And at the same time, are there tweaks we can make, maybe a different design or different color of this particular sweater, as an example, that can ultimately open up a whole wide array of potential customers to us?
Govindraj Ethiraj: And do you feel India has an opportunity at this point of time to benefit from this in any way? And if so, what would that be?
Cameron Johnson: I think the benefit to India is that now it's very clear that the U.S. won't do what's in your best interest and won't help you either. Right. And there is an argument to be made that countries always behave in their own best interest, but they do help others from time to time.
I think it's actually a blessing in disguise that this has happened because the India-China relationship can hopefully become a bit better. And through that, Indian firms can actually access more technology and raw materials that will help fuel their growth. At the same time, Chinese firms want that stability of ordering.
With the U.S. tariffs, it becomes more difficult. Southeast Asia, in some ways, is more mature. There's less manufacturing maneuverability there.
So if you're a Chinese firm and you have technology, you have machinery, you have different pieces and parts, your new growth market is probably India. So both sides now have this opportunity that would not have happened just a couple months ago.
Govindraj Ethiraj: And last question, I mean, and you've said this a little earlier as well, that a lot of Chinese companies are actually selling technology or willing to sell technology, which Indian manufacturers or potential manufacturers could buy. And an illustration of that.
Cameron Johnson: That's correct. I mean, if you want today's technology, 2025, 2024, you probably won't get it. And this is actually a fear that the Chinese do have.
We don't want people to have technology and then it escapes us, right? We don't have control. But the technology of 2020, 2022 is all just sitting on the shelf.
And particularly in certain industries, automotive parts, some electronics, even sporting goods, you do see technology that's readily available that the companies don't care about. They're never going to use that technology again. But for some manufacturers, their technology is 1990.
And so any kind of improvement can be done. I think the other thing, and depending on how these contracts are worked, whether you do a royalty fee, right, to the, for example, to the Chinese manufacturer for Chinese technology, or even if you just buy it outright, there is an argument to be said, pay more money, buy it outright, because then you can take it and fork it and make it indigenous to your own country and your own processes. We're seeing this a bit more in Europe than we are anywhere else in the world, where they are trying to get Chinese firms to bring the technology, but then fork it and make it more European.
I think this is a potential model firms can look at. Regardless, I think the big picture is positive because the technology is available. Not in all areas.
There will be some sectors that aren't, but everybody will benefit. The Chinese will have, be able to make money off of the technology. The Indians will be able to get it and continue to advance their build-out of manufacturing and supply chains.
Govindraj Ethiraj: Cameron, it's my pleasure speaking with you. Thank you so much.
Cameron Johnson: Thank you.
Tesla Orders Disappoint
It's been about a month and a half since Tesla opened its showroom in Mumbai and much later in Delhi as well, but bookings for Tesla's cars have not been really encouraging, at least given all the hype, including on media that you must have seen or could not have missed. Bloomberg is reporting that the Elon Musk-led electric vehicle maker has received orders for just over 600 cars since launching sales in mid-July, a number that's fallen short of its own expectations according to people who spoke to Bloomberg.
That's roughly the number of vehicles Tesla delivered every four hours globally during the first half of the year. Tesla now plans to ship between 350 to 500 cars to India this year, of which the first batch is slated to land from Shanghai in early September, said the people who asked not to be identified, according to Bloomberg. Deliveries will be initially limited or confined to Mumbai, Delhi, Pune, and Gurgaon.
The size of the shipment is based on the full payments it has received for the cars, as well as Tesla's ability to deliver outside of the four cities it currently has a physical footprint in, says Bloomberg. Now, it was quite expected that Tesla cars were not exactly going to fly off the shelves. One reason is price.
The entry-level model is priced at over 60 lakh rupees or $68,000, and that, of course, puts it in the higher end of the car market and is not even a mid-range car, and thus out of the reach of most Indian consumers. Electric vehicles themselves are only about 5% of total car sales, and in this period that we've been hearing about, companies like Mahindra and Mahindra have launched fairly attractive electric vehicle models and have also done pretty well with customers. Meanwhile, Elon Musk is de-emphasising Tesla's car business like never before, this is not my term, it's Bloomberg's, in favour of humanoid robots that are still in development and, of course, a ways off from generating revenue.
Musk said on Monday the company will derive about 80% of its value from Optimus, the robot initiative he first spoke about four years ago, and he made that prediction shortly after Tesla published its latest master plan, which is an oft-updated corporate manifesto that mentioned robots for the first time, according to Bloomberg.
