As the April 2 deadline for US tariff implementation nears, anxiety over the potential impact on Indian exports is growing. According to a report by Emkay, India could lose up to $6 billion in exports if a broad 10% tariff is imposed, and the damage could escalate to $31 billion if tariffs rise to 25%. This would amount to a hit of 0.16% to 0.86% of India’s GDP, making it a serious concern for policymakers and businesses alike.
The likelihood of a country-wide tariff hike appears stronger than sector-specific levies, as the former is simpler to implement. While sectoral tariffs remain a possibility, imposing them across individual industries would require more nuanced negotiations. The least likely scenario involves commodity-based tariffs, which would be more complex to execute. If broad-based tariffs are imposed, the impact will be severe, affecting all Indian exports to the US and posing a substantial threat to trade relations.
Among the industries at risk, the auto, pharmaceutical, and electronics sectors appear better positioned to absorb the impact due to their diversified export markets and existing trade agreements. The real pain points lie in the apparel and gems/jewellery industries, which remain highly exposed to any tariff shocks. With the US being India’s largest export destination, accounting for $77.5 billion in FY24 exports, a blanket tariff hike could significantly disrupt these industries.
While the trade outlook appears daunting, Emkay’s analysis highlights potential avenues for India to negotiate a more favorable arrangement. With former President Donald Trump known for his preference for transactional diplomacy, India has an opportunity to strike a deal that mitigates some of the impending tariff pressures. One potential strategy involves increasing energy imports from the US, particularly crude oil and natural gas. Another option is expanding defense procurement agreements, which align with America’s geopolitical interests. India could also explore lowering import tariffs on key US agricultural commodities and reducing duties on foreign electric vehicles. These measures could serve as negotiating tools without significantly harming India’s domestic industries while offering economic and political advantages to a Trump-led administration.
The ongoing trade war is primarily aimed at China, but India’s ability to capitalize on shifting global trade patterns remains limited. While China’s retreat from low-end manufacturing post-COVID created opportunities, India has captured only a fraction of this market. India’s export basket remains structurally different, with only 45% of its outbound trade classified as complex goods, compared to China’s 75%. This limits India’s ability to step in as a direct replacement for Chinese exports.
Tariffs on Mexico and Canada could open up some export avenues for India, particularly in refined petroleum and auto components. However, the deeply integrated nature of North American supply chains means that any benefits will take time to materialize. While India stands to gain in the long run, it will require a concerted policy push to take advantage of shifting trade dynamics.
As the US moves ahead with its aggressive tariff agenda, India faces a critical moment in its trade policy. While some industries may be insulated from the worst effects, sectors like apparel and jewellery are particularly vulnerable. The government must engage in proactive trade negotiations and sector-specific policy interventions to soften the blow. With the possibility of losing up to $31 billion in exports, India must act swiftly to strike deals, secure exemptions, and shield its economy from the full force of US tariffs. The next few weeks could determine the trajectory of India’s trade relations with its most important partner, making this a test of economic strategy as much as diplomacy.