The Silent Threat of Tariffs: Are We Ready?
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In today’s edition of The Daily Brief:
Tariffs: A Double-Edged Sword for the US Economy
Why India Leads the GCC Boom
Tariffs: A Double-Edged Sword for the US Economy
Today, we’re diving into a big new analysis from the Peterson Institute about potential tariffs and what they could mean for the US economy.
The Peterson Institute has just released a detailed report looking at what might happen if campaign promises about new tariffs turn into actual policies. We’re talking about possible tariffs of 10-20% on all imports, plus a huge 60% tariff on goods from China. But don’t worry, we’ll break down what all this means for your wallet and the economy in plain terms.
First, let’s talk about who would feel the biggest impact. According to the analysis, electronics and machinery would take the hardest hit. Why? Right now, about 27% of all electronics imported to the US, and 18% of the machinery comes from China. Here’s the interesting part—despite past trade tensions, many consumer electronics like phones and laptops were mostly spared from tariffs. The reason? There just weren’t enough alternative manufacturers that could match China’s ability to produce on such a large scale.
The numbers are even more eye-opening in other sectors. China currently supplies 75%—yes, three-quarters—of America’s toys and sports equipment imports, 40% of the footwear, and about 25% of the textiles. According to the Peterson Institute, a 60% tariff on these goods would almost certainly mean higher prices for American consumers.
But there’s another layer to this that’s even more concerning. The report points out that many of these imports aren’t just things we buy at the store—they’re also critical parts used by American manufacturers. So when we’re talking about tariffs on machinery and electronics, we’re really talking about making it more expensive for US companies to compete on a global scale.
And what about our neighbors? The Peterson Institute also looked at what might happen if the US imposed 25% tariffs on goods from Mexico and Canada. This could cause major disruptions because our manufacturing systems are so closely connected. Take the auto industry, for example—parts often cross the border several times during production. Adding tariffs at each step would make the whole process a lot more expensive.
Here’s what makes these warnings even more compelling: we’ve seen something like this before. New research by economists Klein and Meissner explores America’s original high-tariff experiment during the Gilded Age, from 1870 to 1909. Back then, the US kept average tariffs at around 35%, and the results weren’t exactly what you might expect.
Their research uncovered something surprising: industries with higher tariffs actually saw lower labor productivity. But here’s the real kicker—it wasn’t just about being less efficient. The tariffs created a safety net where smaller, less productive companies could survive when they probably shouldn’t have. Think of it this way: instead of encouraging companies to innovate and compete, the tariffs acted like a protective bubble.
They also looked at specific industries, like textiles. Even with tariffs as high as 70%, American producers couldn’t match the quality of European goods. Instead of driving innovation, the tariffs trapped US manufacturers into making lower-quality products. It’s a clear example of how protection doesn’t always lead to competitiveness.
The researchers uncovered something else that feels especially relevant today—many of these historical tariffs weren’t even about smart industrial policy. They were often the result of which industries had the most political influence. Sound familiar? It’s eerily similar to the concerns the Peterson Institute is raising now.
Looking at today’s situation, the Peterson Institute warns that other countries won’t just sit back and accept these tariffs. We could see counter-tariffs on US exports, restrictions on American companies operating overseas, and even export controls on essential materials. The Institute highlights several key areas that could be hit hard by retaliation—agricultural exports, technology services, and more.
The most striking similarity between then and now is this: during the Gilded Age, the industries that became globally competitive did so because of factors like natural resources, technological breakthroughs, and America’s large domestic market—not because of tariff protection.
Here’s the takeaway: while tariffs might seem like a way to shield American industries, history and current analysis suggest they could backfire. They’re likely to raise costs for US manufacturers, increase prices for consumers, and make American businesses less competitive in the global market.
Why India Leads the GCC Boom
Let’s talk about Global Capability Centres—or GCCs—and why they’re suddenly the talk of the town in India. Reports from Knight Frank, Deloitte, and other analysts show that GCCs are one of the most exciting and fast-growing sectors in the country. With predictions that they could contribute $110 billion to India’s economy by 2030, it’s easy to see why there’s so much buzz.
So, we thought, why not take a closer look? What exactly are GCCs? Why are they booming in India? And what do they mean for the country, its talent, and the economy? Let’s break it down.
GCCs—or Global Capability Centres—are offshore hubs set up by multinational corporations (MNCs) to manage various business processes and functions. Think of them as back offices, but that’s just scratching the surface. Over the years, GCCs have grown far beyond basic data entry, taking on more advanced and strategic roles.
What started as a way to save costs has grown into something much bigger and more strategic. Today, these centers take on some of the most complex and high-value tasks for their parent companies. We’re talking about cutting-edge work like research and development (R&D), implementing artificial intelligence (AI), data analytics, cybersecurity, and even improving customer experiences.
India plays a massive role in this space, accounting for over 50% of the global GCC footprint—that’s huge. As of 2023, India is home to around 1,600 GCCs, providing jobs for more than 1.5 million people.
These numbers are only expected to grow. By 2025, the number of GCCs in India is projected to exceed 1,900, creating jobs for over 2 million professionals.
This dominance didn’t happen overnight. Several factors make India a go-to destination for GCCs:
Talent: India boasts one of the largest pools of highly skilled professionals in the world. Every year, the country produces over 1.5 million STEM graduates, ensuring a steady stream of talent for IT, engineering, and data-focused roles. What’s more, this talent isn’t just abundant—it’s highly adaptable.
Cost Efficiency: Labor costs in India are still much lower than in Western markets, even for specialized roles. While rising wages and inflation are challenges, the cost advantage remains strong enough to attract multinational companies.
Location: Cities like Bengaluru, Hyderabad, and Pune are at the heart of India’s tech boom. They’re home to vibrant ecosystems filled with startups, incubators, and research institutions that make them ideal for GCCs.
Government Support: Policies like “Make in India” and “Digital India,” along with state-level initiatives, have created a welcoming environment for businesses. For example, Hyderabad’s Genome Valley is a globally recognized hub for life sciences, attracting GCCs in pharmaceuticals and healthcare.
The scale of India’s GCC industry is truly impressive. These centers occupy around 202.6 million square feet of top-grade office space in the country’s six biggest cities. Bengaluru and Hyderabad alone account for nearly 40% of this space, reinforcing their status as top destinations for GCCs.
The industries represented are impressively diverse. Around 65% of India’s GCCs come from the IT/ITeS (Information Technology and IT-enabled Services) and BFSI (Banking, Financial Services, and Insurance) sectors. But it’s not just about these traditional players—newer sectors like life sciences and engineering are also growing quickly, adding to the momentum.
Put it all together, and you get the story of how a country once known for cost-effective services has transformed into a hub for some of the most advanced and exciting projects in the world. That’s why GCCs in India are seen as a phenomenon worth watching—they create vast job opportunities, drive innovation, and show just how quickly an industry can evolve when the right conditions are in place.
Tidbits
Foxconn posted a record $64.72 billion in Q4 2024 revenue, driven by robust demand for AI servers from clients like Nvidia, offsetting flat growth in consumer electronics. Its shares surged 76% in 2024, reflecting a strategic shift toward high-margin AI and cloud solutions.
NTPC Renewable Energy Ltd won a 1,000 MW solar project in Uttar Pradesh at a tariff of ₹2.56/kWh, strengthening its green energy portfolio. This competitive pricing highlights the affordability of solar power and NTPC’s role in advancing India’s renewable energy goals.
India’s FMCG sector saw rural demand grow at twice the rate of urban in Q3 FY25, with rural sentiment driving 5.7% value growth. However, urban challenges like inflation and high housing costs weigh on margins, with recovery expected in 2-3 quarters.
-This edition of the newsletter was written by Bhuvan and Krishna
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How does tariffs affect labor productivity ?