Economies around the world aren’t currently enduring the best of times, thanks to US President Donald Trump, who announced reciprocal tariffs on nations earlier this month. The aftermath of the decision was such that global markets plummeted in distress over fears of a worldwide economic slowdown.

The move that was aimed at curbing trade imbalances and protecting domestic industries has done more harm than good, triggering retaliation from key trade partners, leading to fears of a full-blown trade war.

Although the US has given a 90-day relaxation, temporarily deferring tariff hikes for many countries, including India, a breath of respite has embraced the public market. However, the horizon still appears clouded due to the uncertainty that lies ahead. During this period, India will bear a reciprocal tariff of 10%.

While venture capitalists (VCs) are keeping a close eye on the developments around tariffs, they are going to exercise caution for at least two quarters, and it is anybody’s guess what happens when VCs are cautious. Nevertheless, the ripples of this will be felt across the Indian startup ecosystem.

Speaking with Inc42, many investors confirmed that while they are watchful, they plan to tweak their investment strategies in tandem with the tariff war

Meanwhile, foreign limited partners (LPs), including HNIs and family offices, are expected to sit tight, holding their funds, for at least the next six months. European VCs are also weighing Trump’s decision on tariffs, as LPs shy away from the private markets.

A recent analysis by PitchBook, a capital markets research firm, suggests that the recent tariff announcements have significantly impacted VC-backed startups’ IPO plans in the US.

Amid the equity market sell-off, many VC investors want their IPO-bound portfolio companies in the US to stay put.

Back home, startup investors are groping in the dark to understand the impact of the US’ tariff decision on the country, while many see a glimmer of hope in manufacturing.

But, let’s not celebrate just yet because we may as well be looking at an impending crisis in the short term, similar to the one endured during the Covid-19 pandemic. Meanwhile, some also anticipate long-term blues for the global supply chain for certain goods.

All of these points to but one thing — an impending funding........

© Inc42