Navigating US Tariff Hikes: Jefferies Lists Sectors At Risk, Potential Gainers

The potential for higher defence and oil and gas imports from the US could help offset some of the impact from expected tariff hikes. However, some sectors, including automobiles, pharmaceuticals, textiles, and alcohol, could face adverse effects from these increased tariffs, Jefferies said in a note on Friday.

President Donald Trump is expected to announce reciprocal tariffs on April 2, after slapping 25% tariffs on auto imports. However, the government has expressed optimism on reaching a deal before the announcement, Jefferies noted.

India's trade surplus with the US was $46 billion in 2024, with a significant portion of exports focused on low-tech manufacturing goods like garments, auto components, and chemicals.

India's average tariff rate of 12% is considerably higher than that of competing emerging markets, like China and Mexico, which have rates between 3% and 5%, revealed WTO data from 2023. Sectors like automobiles (with tariff up to 110%) and agriculture (65% average tariff) could see increased pressure if the US imposes reciprocal tariffs.

Indian officials are focused on reducing the impact of potential US tariffs and exploring targeted tariff cuts in the short term. The government is also pursuing a Bilateral Trade Agreement with the US, aiming for completion by late 2025. This agreement may involve increased US imports, such as defence equipment and oil and gas, in exchange for lower tariffs on certain goods.

However, this could be complicated by politically or economically sensitive sectors, such as agriculture, automobiles, and pharmaceuticals. The US may also push for stricter intellectual property rights on pharmaceuticals, which could create tensions.

The potential impact on various sectors is significant. The auto industry, including companies like Tata Motors Ltd., and auto components manufacturers such as Bharat Forge Ltd. and Sona BLW Precision Forgings Ltd., could face difficulties due to higher tariffs.

Generic pharmaceutical companies like Zydus Lifesciences Ltd., Dr. Reddy's Laboratories Ltd., and Lupin Ltd., which rely heavily on the US market, may also be affected. In contrast, sectors like chemicals, IT, and ports may experience limited impact, as their exposure to US imports is lower.

On the positive side, in the consumer goods sector, the potential trade deals and reduced input costs could benefit select companies, offsetting broader tariff challenges. Interestingly, Canada and Mexico, which have been most affected by US tariffs, have shown positive growth, suggesting that tariff impact does not necessarily halt overall economic progress.