Explained: Indian Sectors Likely To Be Hit By Trump's Reciprocal Tariffs And Road Ahead

The US President has targeted India for its high tariffs on cars and motorbikes, though India has made efforts lately to mitigate the perception in this sector.

India exported $80.7 billion worth of goods in calendar year 2024 and against that imported $44.14 billion during the same period, thereby running a trade surplus. This trade surplus is an issue with the US, which seeks more access to Indian markets at lower tariff rates.

The US President has targeted India for its high tariffs on cars and motorbikes, though India has made efforts lately to mitigate the perception in this sector.

India exported $80.7 billion worth of goods in calendar year 2024 and against that imported $44.14 billion during the same period, thereby running a trade surplus. This trade surplus is an issue with the US, which seeks more access to Indian markets at lower tariff rates.

At the country level, based on weighted average, India charges a 7.7% tariff on all US goods while the US charges just a 2.8% tariff at the country level for all Indian goods imported by the country.

This differential seems small at 4.9%, but the differential is because at a country level India imposes 37.7% for all agricultural goods and 5.9% for all industrial goods. Comparatively, the US charges 5.3% on agricultural goods and 2.6% for industrial goods from India.

Notably, between India and US, 95% of the trade comprises of industrial goods and around 5% is on agricultural goods. It is unlikely that India will discuss any change in agricultural goods at this stage.

India has Free Trade Agreements with Japan, South Korea and ASEAN region at zero tariff for all industrial imports and that covers around 90% country's requirement. Experts suggest that India should offer the same concession to the US bringing it at par with its Asian trade partners.

India recently withdrew an equalisation levy of 6% on e-commerce and online companies which is expected to benefit Meta, Google, X, Amazon among other companies. This follows a reduction in import tariffs for bikes and passenger car imports from the US.

It is unclear as of now as to how Trump will like to impose tariffs — Country Level, Industry Level or Sector Level. While data is very sketchy on this the likelihood would be similar to what US administration has been imposing on other partners - Country Level.

But what if it is on an industry or sector level. For example, if auto and auto components are taken together then the composite tariff will be 24.1% that India charges US companies, while US charges around 1%. With in sector, auto components are charged at 7.5% while passenger cars and bikes range from 30-100%.

For the chemicals and pharma sector, the composite tariff is 7.5-10% for imports from the US while the US charges zero tariff on imports. As per reports, India exports nearly $13 billion in chemicals and pharmaceutical products, which forms 45% of the total generics that US imports and around 90% of the drugs prescribed by physicians. The advantage for the pharma sector is that the importers bear the cost of tariff and so the impact is limited on the Indian companies.

Based on the trade tariff differentials, the sectors that will be mostly impacted will be agricultural goods, automobile and auto components, gems and jewellery, chemical and pharmaceuticals, plastics and machinery. The impact on iron, steel and textiles will be limited for India companies.

India is actively negotiating with the US for Bilateral Trade Agreement and the first measures are expected to come into effect by end of 2025. The deal is expected to reduce tariff in line with what it offers to Asian trade partners and remove non-tariff barriers for US companies.

In addition, India is also working to deepen the global supply chain including working to create the India - Middle East - Europe - Economic Corridor comprising of India, Saudi Arabia, the European Union (EU), the United Arab Emirates (UAE), France, Germany, Italy, and the United States.