The global trade landscape is shifting rapidly, with the US imposing and reviewing tariffs on several nations. India, a key trading partner, could soon face similar measures. This article explores the potential impact of US tariffs on India, the sectors most at risk, and the broader economic implications.
What Is Happening with Tariffs in the US?
The US has maintained and expanded tariffs on various imports, primarily targeting China under policies like Section 301. However, these measures also affect other trading partners, including India. For instance, Trump-era tariffs on steel (25%) and aluminium (10%) remain in place. Additionally, the Biden administration’s Inflation Reduction Act introduces local content rules, indirectly influencing trade dynamics. The US is also reviewing tariffs on clean energy imports, which could impact India’s solar equipment exports.
What Are Tariffs?
Tariffs are taxes imposed on imported goods, increasing their prices to protect domestic industries or exert geopolitical pressure. They are often used as tools to address unfair trade practices or achieve strategic economic goals.
Which Tariffs Are Expected to Impact India Most?
India faces significant risks from existing and potential US tariffs. Key measures include:
- Steel and Aluminum Tariffs: A 25% duty on steel and 10% on aluminum, affecting $1.5 billion of Indian exports.
- GSP Withdrawal: The US revoked India’s Generalised System of Preferences (GSP) status in 2019, eliminating duty-free access for $6.3 billion worth of exports, including textiles and engineering goods.
- Solar Panel Tariffs: Reviews under the Uyghur Forced Labour Prevention Act (UFLPA) could disrupt India’s solar module exports to the US.
Which Sectors Are Heavily Impacted?
Several Indian sectors are vulnerable to US tariffs, with varying degrees of exposure:
- Textiles: Accounting for 25% of India’s US exports ($8 billion), tariffs could reduce exports by 10–15%.
- Engineering Goods: Representing 15% of US exports ($5 billion), higher costs may erode competitiveness.
- Pharmaceuticals: With 30% of US generic drug imports ($7 billion), stricter FDA norms and tariffs could squeeze margins.
- Chemicals: Exports worth $3 billion face risks from retaliatory tariffs and supply chain disruptions.
What Will Be the Impact on the Indian Economy?
US tariffs could have widespread consequences for India’s economy. A decline in exports to the US, India’s third-largest trading partner, may widen the trade deficit if alternatives aren’t secured. Labour-intensive industries like textiles and MSMEs, which employ around 45 million people, could face setbacks due to lower demand. Additionally, retaliatory tariffs on US imports such as almonds and apples might drive up domestic prices, fuelling inflation. If key sectors stagnate, India’s GDP growth could take a hit, potentially declining by 0.2–0.4%.
To counter these risks, India is adopting strategic shifts. Diversifying exports by strengthening trade ties with the EU and ASEAN can help reduce dependence on the US. Boosting domestic manufacturing through initiatives like the Production-Linked Incentive (PLI) scheme aims to enhance self-reliance. India is also accelerating trade agreements with the EU and UK to secure alternative markets. Additionally, prioritising high-value exports such as electronics and renewable energy products could help offset losses from tariffs, ensuring long-term economic resilience.
Lessons from Other Nations
The US has also imposed tariffs on Canada, Mexico, and China, sparking international backlash. For example, Canada retaliated with 25% tariffs on $155 billion worth of US goods, while China warned of “corresponding countermeasures.” These developments highlight the delicate balance of international trade and the potential for escalating conflicts.
Conclusion
As the US continues to review and impose tariffs, India must prepare for potential economic challenges. While sectors like textiles, engineering goods, and pharmaceuticals face immediate risks, strategic diversification and domestic reforms could help mitigate long-term impacts. The global trade environment remains uncertain, but proactive measures can position India to navigate these turbulent waters effectively.
Written By Fazal Ul Vahab C H
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