While concerns over reciprocal tariffs on India may seem alarming, sectoral nuances indicate that the actual impact could be less severe than perceived. The extent of the effect largely depends on how President Trump approaches tariff imposition. Sectors that appear most vulnerable include Automobiles, Gems & Jewelry, Chemicals, and Pharma, but their risk levels vary significantly based on how tariffs are structured—whether applied broadly across countries or targeted at specific sectors or sub-sectors.
For instance, India’s tariffs on automobiles (100-125%) are substantially higher than those imposed by the US, while auto component tariffs (7.5-10%) are relatively moderate. The actual exposure of the auto sector, therefore, hinges on the specificity of US tariff implementation. A similar pattern is observed across other vulnerable sectors, where varying tariff rates on sub-components and commodity groups complicate the assessment. Given this complexity, it is likely that the US will impose reciprocal tariffs at a broad country level rather than with a sector-specific focus. However, such tariffs could be rolled back within six months due to increasing economic and political pressure.
Zero-for-Zero’ Industrial Tariffs as a Strategic Concession
A significant portion—over 70%—of India’s imports from the US already face tariffs below 5%, challenging the notion that India imposes high tariffs on US goods across the board. A strategic and minimally disruptive concession India could offer is a ‘zero-for-zero’ tariff arrangement on a broad set of industrial goods, similar to those already imported at zero tariffs from Free Trade Agreement (FTA) partners like Japan, South Korea, and ASEAN countries.
Since these goods already enter India duty-free, extending the same benefit to the US would not impact domestic industries while offering a tangible gesture of trade cooperation. However, agricultural commodities should be excluded from such negotiations, as they require separate trade discussions. This approach would allow India to avoid engaging in a full-fledged FTA, where the US might push for difficult compromises on services, patents, and government procurement. Additionally, sectors such as apparel and petroleum products are unlikely to be affected by reciprocal tariffs, as the US already imposes tariffs that match or exceed those levied by India.
Assessing India’s Potential Gains from the Trade War
India saw a tangible benefit from the previous US-China trade war, with exports to the US increasing by $38 billion between 2017 and 2023—one of the largest gains among US import sources. However, China successfully mitigated its losses by rerouting exports through Mexico and Vietnam, maintaining its export dominance.
The scope of the current proposed tariffs is broader than the previous trade war, making the potential impact difficult to predict. With no official reciprocal tariffs announced yet, their precise effects remain uncertain. Nonetheless, considering the scale of Chinese manufacturing, a complete decoupling from the US market seems unlikely. Chinese goods are expected to find alternative trade routes, reducing the direct benefits India might gain from any resulting supply chain shifts.
