India–US Trade Update: Impact of Additional Tariffs

India–US Trade Update: Impact of Additional Tariffs

Context

Global market conditions remain fluid, reflecting the persistent uncertainty seen since the Global Financial Crisis. The latest US tariff actions—an additional 25% duty on selected imports—have created new challenges and opportunities for Indian exporters.

Key Insights from Company Interactions

1. Limited Direct Impact on Core Exports

Of India’s ~$80bn exports to the US, major segments like pharmaceuticals, crude derivatives, and specialty electrical parts remain largely exempt (per White House Annexure II).

2. Clarity Gap Slowing Orders

Exporters face uncertainty on product coverage, delaying bookings as manufacturers seek confirmation from US buyers.

3. Higher Risk for Low-Value Sectors

Gems & jewellery, textiles, and job-work-based goods—lacking pricing power—are most exposed to margin compression.

4. Tariff Absorption Challenges

In electrical components, the first 25% tariff was absorbed as a global norm; the new hike is significantly harder to pass on.

5. Strategic Adjustments Underway

Price negotiations and acceptance of near-term margin pressure.

Short-term orders leveraged due to limited US production capacity.

Evaluating temporary or permanent manufacturing in the US or tariff-favored regions.

Investing in niche and higher value-add product categories.

6. Supply Chain Stickiness

Vendor approvals, audits, and integration costs make rapid supply shifts unlikely. Many US corporates have committed to Indian supply chains for the long term.

7. Relative Strength of Niche Players

Companies with differentiated, higher-margin products have more flexibility to absorb cost pressures.

Outlook

Despite uncertainty, manufacturing momentum continues. Exporters are upgrading infrastructure, diversifying product portfolios, and reinforcing customer relationships. Cautious optimism prevails that a diplomatic resolution—potentially linked to broader US–Russia developments—could ease tariff headwinds.

Akshay Tiwari

Next Portfolio 

www.nextportfolioindia.com