The potential imposition of reciprocal tariffs by U.S. President Donald Trump starting in April has raised concerns within India's export sectors.
The move, which threatens to disrupt a variety of industries from automobiles to agriculture, has analysts from Citi Research estimating that the loss could amount to approximately $7 billion annually.
Indian government officials are awaiting clarification on how these tariffs will be calculated to properly gauge their full economic impact.
In the meantime, they are preparing countermeasures and are also working on a proposal for a trade deal with the U.S. aimed at reducing tariffs and fostering mutual trade growth.
Certain sectors appear more vulnerable to these potential tariffs than others. Chemicals, metal products, and jewellery are considered the most at risk, followed by automobiles, pharmaceuticals, and food products.
According to Citi analysts, India’s exports to the U.S., valued at around $74 billion in 2024, include goods such as pearls, gems, and jewellery ($8.5 billion), pharmaceuticals ($8 billion), and petrochemicals ($4 billion).
In comparison, India’s merchandise exports face higher tariffs from the U.S., with a weighted average tariff of 11 pc in 2023, which is approximately 8.2 percentage points higher than the U.S. tariffs on Indian exports, according to Citi estimates.
On the flip side, U.S. manufacturing exports to India, worth almost $42 billion in 2024, also face higher tariffs from India.
These tariffs range from 7 pc on products such as wood and machinery to 15 pc to 20 pc on footwear and transport equipment. Food items, in particular, are subject to an eye-watering 68 pc tariff.
A fact sheet issued by the White House noted that the U.S. has an average Most Favoured Nation (MFN) tariff of 5% on farm goods, whereas India's tariff on the same products is a significantly higher 39 pc.
Additionally, the U.S. imposes a 2.4 pc tariff on Indian motorcycles, while India has set a 100 pc tariff on U.S. motorcycles.
The agriculture sector, in particular, would be significantly affected if the U.S. imposes reciprocal tariffs on a broader range of farm products. This is mainly because of the high tariff differentials between the two countries in this sector, coupled with low trade volumes.
In contrast, sectors such as textiles, leather, and wood products, which are labour-intensive industries, face relatively lower risks due to smaller tariff differentials and a limited share of U.S.-India trade.
Moreover, many American companies manufacture these goods in South Asia and benefit from India's free trade agreements, allowing them to sell these products in the U.S. at lower tariffs.
In the worst-case scenario, where the U.S. imposes a uniform tariff hike of 10 pc on all goods and services imported from India, economists at Standard Chartered Bank predict that the Indian economy could suffer a hit of 50 to 60 basis points, assuming an 11 pc to 12 pc decline in imports.
In a bid to alleviate trade tensions, India has already taken steps to reduce tariffs on several items. For example, tariffs on high-end motorcycles have been lowered from 50 pc to 30 pc, while tariffs on bourbon whiskey have been reduced from 150 pc to 100 pc.
India has also committed to reviewing other tariffs, increasing energy imports, and purchasing more defence equipment to ease the trade imbalance.
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