Economic effects of US protectionism: event study evidence from an emerging market

Purpose This study examines the economic impacts of the 2025 US tariff announcement on firms listed on the National Stock Exchange of India. This study addresses three questions: (1) Did Indian equities exhibit significant reactions to the tariff announcement by the US? (2) Were export-oriented sectors disproportionately impacted? (3) How does firm-level exposure to international trade modulate the magnitude of response?. It aims to bridge gaps in understanding trade policy transmission in emerging markets. Design/methodology/approach Employing event study methodology, daily stock returns of 1,778 NSE-listed firms are analyzed over a −3, +5 event window. Abnormal returns are estimated using the market model. Concomitantly, cross-sectional regressions examine how firm-level foreign exchange (forex) earnings influenced the market reaction. Non-parametric and heteroscedasticity tests are applied for robustness. Findings The tariff announcement triggered short-term volatility, with export-oriented sectors experiencing sharp declines (−1.46% at t+1). However, cumulative returns remained positive (+4.02% by t+5), reflecting net optimism tied to India’s domestic resilience and trade diversion potential. Findings also indicate sectoral heterogeneity. The technology sector rebounded post-correction (+0.87% at t+3), while the utilities and the consumer non-cyclicals sectors outperformed. Results contrast with global patterns, suggesting India’s unique positioning in global supply chains. Cross-sectional findings indicate that firms with higher forex earnings exhibited significantly negative event-day and post-event returns. Large firms absorbed sharper initial declines, with significant negative coefficients during (on) the pre-event period (event day). Originality/value This study pioneers the analysis of US protectionism’s equity market impacts in India, challenging conventional trade shock narratives by revealing optimism in an emerging market context. It offers insights into sectoral resilience and investor behavior under policy uncertainty.