Explainer: How US tariffs impact India

The reciprocal tariffs on Indian exports announced by US President Donald Trump pose a threat of trade decline in several sectors, including electronics, gems, jewellery and fisheries. On the positive side, Indian pharmaceuticals, energy products and semiconductors have escaped the Trump tariff blow. Industry body PHDCCI estimates a 0.1 per cent impact on India’s GDP, though investment banking and wealth managing company Goldman Sachs puts a higher figure. It estimates a potential decline of $15 billion (Rs 1,27,000 crore) in Indian exports, which is about 0.4 per cent of the country’s GDP. The Trump-imposed protectionist tariff regime is the first since the 1930 US legislation called the Smoot-Hawley Tariff Act raised import duties to protect American businesses and farmers. Advertisement The latest US move raises questions on continuity of the World Trade Organisation-regulated trade regime, including the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, which establishes minimum standards for intellectual property protection among WTO member nations. Ashwani Mahajan, national co-convener of Swadeshi Jagran Manch, says the WTO has lost its relevance after these tariffs. “We have been a loser in the WTO,” he stresses. WHAT lies ahead Advertisement For India, the early start to the bilateral trade negotiations with the US — the first round ended on March 29 — is a silver lining. Within the Government, the sentiment is to ‘negotiate and not escalate’. During Prime Minister Narendra Modi’s US visit in February, the two nations agreed to have a trade deal by October this year. India is open to cutting tariffs for US goods. Over the past few weeks, import duties have been slashed on some 8,500 industrial items, including on American bourbon whiskey and high-end motorcycles made by Harley-Davidson. India has also indicated its willingness to buy more American oil, LNG and defence equipment to narrow its bilateral trade surplus. The White House said India imposes its “own uniquely burdensome” testing and certification. “If these barriers were removed, it is estimated that US exports would increase by at least $5.3 billion annually,” it added. Ajay Sahai, director general and chief executive officer of the Federation of Indian Exporters Organisation (FIEO), wants timely conclusion of the Bilateral Trade Agreement to mitigate tariffs and provide relief to exporters. TAKING THE MAXIMUM hit The office of the US Trade Representative (USTR) pegs the 2024 US-India bilateral trade at $129.2 billion — US exports to India totalled $41.8 billion, while it imported $87.4 billion worth of goods from India. From 2021-22 to 2023-24, the US was the largest trading partner of India. The US accounts for about 18 per cent of India’s total goods exports. India’s exports to the US span 30 sectors, with six in agriculture and 24 in industry. Prime Indian exports to the US include $14 billion worth of electronics products; $11.88 billion worth of diamonds, gold and silver; and $2.58 billion worth of fish, meat and processed seafood. These will now be taxed at 27 per cent and are among the most impacted. Auto parts and aluminium products will attract 25 per cent tariff that Trump had announced earlier. For the diaspora, all India-made wines, spirits, ghee, coconut oil, mustard oil and processed food — packaged snacks and confectionery items — would be expensive in the US. An opportunity TOO The US has set higher reciprocal tariff on goods from other Asian countries — China faces 34 per cent, Vietnam 46 per cent, Bangladesh 37 per cent, and Thailand 36 per cent. This relatively lower tariff on Indian goods gives India a competitive edge in several sectors like textiles, apparel, footwear, etc. It presents an opportunity for New Delhi to gain access to US markets as an alternative to China using the tariff differential. Harsh Pant, vice-president, Observer Research Foundation, says, “With new tariffs, a supply chain restructuring is bound to happen. It opens up an opportunity for India.” Still, India will face tariffs at rates higher than the UK, EU and Japan — at 10, 20 and 24 per cent, respectively. The Trump tariff announcement leaving out the Indian pharma sector, with exports of $9 billion, and semiconductors is a positive. India also has a chance to step up exports of iron and steel products, where it enjoys tariffs lower than China, according to an assessment of the Commerce Ministry.