US President Donald Trump's tariff threats have dominated headlines ever since he took office earlier this year. His first much-hyped "reciprocal tariffs" announced in February are expected to kick in on April 2.
This policy is set to have significant negative implications for India due to the existing trade dynamics. The most vulnerable sectors as per analysts are seafood, iron and steel, nuclear reactors, pharma products, gems and jewellery and electrical machinery.
India US Trade Relations
The United States is one of India's largest trading partners. India exported and imported goods worth $81 billion and $44 billion respectively from the US in 2024. The US' share as part of India's total export bill has also increased over the years, from 12% in FY13 to 17.7% in FY24.
As per Emkay, a potential reciprocal tariff of 10% on a country-wise basis could lead to a $6 billion loss to India's exports. This is 0.16% of India's GDP. On the extreme end, a 25% reciprocal tariff could lead to a $31 billion loss to India's exports. This is 2.1% of India's GDP.
India Charges Higher Tariffs
Despite extensive trade relations between the two countries for around 25 years now, the tariffs charged on imports by the two countries are very different. India charges higher tariff rates on US imports and has one of the largest tariff gaps with the US versus other nations. Of India's total US imports in FY24, 55% were charged a tariff rate of 5% to 10%.
On a weighted average basis, India charges a 12% tariff rate on US imported goods, while US charges India only 3%.
Most Vulnerable Sectors
As per Motilal Oswal, the most vulnerable sectors are seafood, iron and steel, nuclear reactors, pharma products, gems and jewellery and electrical machinery.
Emkay also notes the following sectors as the most exposed to reciprocal tariffs:
Oils, perfumes, cosmetics.
Lac, gums, resins.
Meat preparations.
Carpets.
Furniture, bedding, cushions, lamp.
Footwear.
What India Can Do To Reduce Impact
Higher tariffs on Indian pharma products are unlikely, according to analysts. This is because of India's leverage as the largest exporter of generic drugs in the world. India accounts for 47% of US' generic imports by volume and the low value-high volume nature of India's generic drug exports makes them attractive for the US, and hence difficult to replace, as per Emkay Research. Furthermore, India accounted for over a third of all US FDA authorisations over the past few years
India can strike a deal by doing the following, according to Emkay:
Increase oil and natural gas imports from US.
Increase purchase of defence equipment.
Reduce tariffs on certain agricultural or food commodities.
Let Tesla enter India by reducing tariffs on foreign EVs.
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