The Potential Impact of US Tariffs on India

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Let’s understand the impact of US tariffs on our key sectors

The United States is one of India’s largest trading partners, with exports to the US comprising a significant portion of India’s total outbound trade. Any imposition of tariffs by the US on Indian exports can have far-reaching consequences for specific sectors, individual companies, and the overall Indian economy.

With proposed tariffs ranging from 15% to 25% on various imports — including automobiles, pharmaceuticals, and electronics — the impact could be substantial. Goldman Sachs estimates that such tariffs might reduce India’s GDP growth by approximately 0.1% to 0.6%, depending on their structure and extent.

Impact on Key Sectors

1. IT and Software Services

While tariffs mainly target goods, changes in regulations like visa policies or taxation on services could impact India’s IT sector. Increased costs may affect the competitiveness and margins of major Indian IT firms.

2. Textiles and Apparel

The US is a key export market for Indian textiles. Higher tariffs could reduce the price competitiveness of Indian apparel compared to suppliers from Vietnam and Bangladesh, impacting orders and employment.

3. Pharmaceuticals

A 25% tariff could affect exports from India’s pharma giants. However, India’s dominant position in generic medicines and diversification may soften the blow.

4. Auto Components

Tariffs may disrupt supply chains and reduce demand for Indian auto part exporters. US buyers could shift to local or alternative low-cost suppliers.

5. Electronics

Increased tariffs could hurt Indian electronics exporters and delay India’s plans to become a global electronics manufacturing hub.

6. Steel and Aluminium

Existing duties may rise further, negatively affecting export margins and volumes in these sectors.

Impact on Indian Companies

Many companies may look to diversify exports toward Europe, Asia, or the Middle East. While a 3–3.5% overall decline in exports is estimated by SBI, India’s diversified product base and quality improvements offer some resilience.

Broader Economic Implications

Trade Deficit

Reduced exports without a proportional decline in imports could widen India’s trade deficit, affecting forex reserves and the rupee.

Employment Risks

Labour-intensive sectors like textiles and manufacturing may face job losses due to lower export orders.

Foreign Direct Investment (FDI)

US-based firms may adopt a cautious approach, delaying or reducing new investments in India.

Export Market Diversification

Indian companies might increasingly target alternative markets like Southeast Asia and Europe to offset losses from US tariffs.

Policy Adjustments

The Indian government may introduce new incentives for local manufacturing and explore bilateral agreements to safeguard exporters.

Conclusion

US tariffs present a potential threat to key Indian export sectors like pharma, textiles, and electronics. Yet, India’s strategic diversification, policy responses, and global competitiveness could help minimize long-term impacts. Strengthening trade alliances and ensuring internal resilience remain the keys to navigating these external challenges.