While the exact details of the tariff plan remain unclear, a report by financial services company Emkay Global suggests that the proposed measures could take one of three forms: broad country-level tariffs, sector-specific tariffs, or commodity-level tariffs. Of these, a broad country-level tariff is considered the most likely and potentially the most damaging for India.
Scenarios for Implementation
The report, titled Reciprocal Tariffs: Big Bite, Small Bark, says the simplest and most probable scenario involves a blanket tariff on all imports from India, potentially set at 10%, reflecting the weighted average tariff India imposes on US imports.
Such a measure would impact all goods equally, regardless of their economic or strategic importance. This approach could lead to an estimated export loss of $6 billion for India, equivalent to 0.16% of its GDP. If tariffs rise to 25%, the loss could balloon to $31 billion.
Alternatively, sector-specific tariffs could be imposed, targeting industries with significant trade imbalances or high tariff differentials. While this scenario would require more complex calculations, it could mitigate the overall impact by sparing less vulnerable sectors. The least likely option involves commodity-level tariffs, which would require managing millions of individual tariff rates—a logistical challenge for the US administration.
Key Sectors at Risk
India’s exports to the US, valued at $77.5 billion in FY24, span a range of sectors with varying levels of vulnerability. Electronics, gems and jewellery, apparel, pharmaceuticals, and automobiles are among the key industries that could face significant challenges under a broad tariff regime.
Electronics, India’s largest export category to the US, valued at $11.1 billion, would see higher costs passed on to US consumers due to its low domestic value addition. Gems and jewellery, with $9.9 billion in exports to the US, is particularly exposed, as sourcing could shift to countries with free trade agreements. Apparel exports, valued at $7.5 billion, would also face stiff competition from Vietnam and Bangladesh, which could benefit from lower incremental tariffs.
Strategies to Minimise the Impact
India has several options to mitigate the fallout from these tariffs. Strategic concessions and targeted negotiations could help reduce the tariff burden while protecting domestic industries.
One effective strategy is increasing US energy imports, particularly liquefied natural gas (LNG). The US is already India’s second-largest LNG supplier, and higher imports would align with India’s energy diversification goals while serving as a concession to the Trump administration.
Defence purchases offer another avenue for negotiation. By deepening defence ties with the US, India could reduce its reliance on Russian military equipment while fostering domestic manufacturing through technology transfer agreements. Recent deals, such as the collaboration between Hindustan Aeronautics Ltd (HAL) and General Electric to manufacture jet engines in India, highlight the potential for mutually beneficial partnerships.
Lowering tariffs on select agricultural products could also serve as a strategic concession. For instance, reducing duties on US fruits and nuts, which already account for 25% of India’s imports in this category, could curry favour with the Trump administration while lowering costs for Indian consumers. Similarly, easing import duties on US cotton could support India’s textile industry, which faces significant risks under the tariff regime.
Leveraging Strengths
India’s pharmaceutical sector, which exports $12.5 billion worth of products to the US, could serve as a bargaining chip in negotiations. With Indian generics accounting for 47% of US imports by volume, any tariffs on this sector would likely raise drug costs for US consumers. This dependence on Indian generics provides India with leverage to negotiate exemptions for its pharmaceutical exports.
Limited Opportunities from Global Tariffs
While the broader US tariff war targets countries like China, Mexico, and Canada, India’s opportunity to benefit remains limited. The integrated nature of North American supply chains makes it challenging for India to replace Mexican or Canadian exports to the US. Additionally, India has not gained significant market share in sectors vacated by China, such as textiles and jewellery, further limiting its ability to capitalise on the global tariff war.
Charting the Path Forward
As the Trump administration’s tariff plan looms, India must adopt a proactive approach to minimise disruptions. By offering strategic concessions, leveraging its strengths in key sectors, and pursuing targeted negotiations, India can mitigate the economic fallout. While the challenges are considerable, a calculated response could help safeguard India’s trade relationship with the US and protect its export-driven economy.
