India faces potential losses of $7 billion as the US considers reciprocal tariffs, impacting key sectors like chemicals, jewellery, and automobiles. With India’s 2023 average tariff at 11%, higher than the US’s 2.8%, officials are crafting trade deals to reduce tariffs and boost bilateral trade. Agriculture and food exports are most vulnerable, while textiles and leather face lower risks. Despite challenges, India is reducing tariffs on key items and strengthening energy and defense trade, signaling a commitment to fostering long-term economic cooperation.
Concerns are emerging within India’s export industries, from automobiles to agriculture, as the US considers implementing reciprocal tariffs starting in early April. Analysts from Citi Research estimate potential annual losses for India could reach up to $7 billion. However, Indian officials are already strategizing countermeasures and crafting proposals for a stronger trade deal with the United States to reduce tariffs and boost bilateral trade. This proactive approach highlights India’s commitment to minimizing the impacts while fostering economic cooperation.
Key export sectors such as chemicals, metal products, and jewelry are seen as most vulnerable, alongside automobiles, pharmaceuticals, and food products. In 2024, India’s merchandise exports to the US were valued at nearly 74 billion, including pearls, gems, and jewellery (74 billion, including pearls, gems, and jewellery (74 billion, including pearls, gems, and jewellery(8.5 billion), pharmaceuticals (8billion), and petrochemicals (8 billion), and petrochemicals (8billion), and petrochemicals (4 billion). It's worth noting that India’s weighted average tariff in 2023 stood at 11%, significantly higher than the US’s average tariff of 2.8% on Indian goods.
In contrast, US exports to India—worth $42 billion in 2024—face steeper tariff barriers. These range from 7% on wood products and machinery to 15-20% on footwear and transport equipment and nearly 68% on food items. The tariff disparity is particularly stark in agriculture, with the US imposing an average Most Favored Nation (MFN) tariff of 5% on agricultural goods, compared to India’s 39%. High tariffs on specific items, such as a 100% tariff on US motorcycles compared to the US’s 2.4% tariff on Indian motorcycles, further underscore these differences.
In agriculture, India’s exports could face significant challenges if reciprocal tariffs are applied more broadly, as high tariff differentials combined with low trade volumes make this sector particularly sensitive. However, some industries, including textiles, leather, and wood products, are less likely to be heavily impacted due to smaller tariff differences or limited trade flows. Additionally, many American companies manufacturing these goods in South Asia benefit from India’s free trade agreements, enabling them to sell at competitive rates in the US.
In a worst-case scenario where the US imposes a uniform 10% tariff hike on all Indian imports, Standard Chartered Bank economists predict a potential 50-60 basis point decline in India’s economic growth, with US imports from India potentially dropping by 11-12%. Despite this, India’s efforts to address concerns are evident. The country has already reduced tariffs on key items, including slashing tariffs on high-end motorcycles from 50% to 30% and bourbon whiskey from 150% to 100%. There are also commitments to review additional tariffs, increase energy imports, and procure more defense equipment from the US.
As India and the US navigate these trade tensions, both nations have opportunities to strengthen their economic partnership by addressing tariff disparities and expanding two-way trade. Collaborative efforts could pave the way for a mutually beneficial outcome, fostering growth and stability in the long term.
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