Trump’s tariffs to shake up engineering and electronic goods exports

The US is one of India’s largest trading partners and its top export destination, with bilateral merchandise trade reaching $119.72 billion in FY24, including $77.52 billion in exports and $42.20 billion in imports.

According to a report by Kotak Institutional Equities on Thursday, key export sectors like engineering goods, and specialty chemicals are among the worst impacted by the reciprocal tariffs.

“The imposition of a uniform 26% reciprocal tariff on India’s exports to the US will likely have a large negative impact on the profitability and possibly volumes of sectors and companies with a meaningful portion of their revenues from the US market,” the report said.

“We doubt companies will be able to change and/or reroute exports meaningfully, leading to companies likely having to absorb a decent portion of the higher tariffs. We see second-order price competition among exporters to the US and other countries as global trading patterns adjust to high tariffs in the US,” it added.

India’s exports to the US in FY24 included $17.63 billion in engineering goods and $10.05 billion in electronics, compared to $18.68 billion and $5.76 billion, respectively, in the previous year, according to the commerce ministry.

Notably, the US is among the few countries where India enjoys a trade surplus, which rose to $35.33 billion in FY24 from $27.69 billion the previous year.

“The tariff reset will reshape industry competitiveness across export- and import-dependent sectors. The US is a about $7 billion export market for Indian auto component manufacturers,” said Sankar Chakraborti, MD & CEO, Acuité Ratings and Research Ltd.

“The 25% tariff on automobiles and components could exacerbate the congestion for our exporters competing with Vietnamese and Mexican counterparts. These players may lose anywhere between 8-12% of their margins,” he added.

The US, India’s top auto component export market, accounted for 27% of shipments, reaching $6.79 billion in FY24.

Meanwhile, smartphone exports to the US have surged substantially from $128 million in 2021-22 to $5.6 billion in 2023-24.

Prior to 2 April, the US’s sector-wide average tariffs on India for electronic products stood at 0.41% and automobiles at 1.05%, according to Global Trade Research Initiative.

To be sure, smartphones and telecom equipment drove India’s export growth, adding $6.2 billion—17.2% of the total increase from 2017 to 2023, according to the research group.

“Some of the critical export sectors to the US, like textiles, electronics, gems and jewellery will feel the pinch of reciprocal tariffs. However, the point to note is that countries competing with us in the export market for some of these items, like Vietnam, China, Bangladesh, and Cambodia have been hit by even higher tariffs, hence for India, the adverse impact on exports could be relatively lower,” said Rajani Sinha, Chief Economist at CareEdge Ratings.

“We expect overall impact of reciprocal tariff on India at around 0.2-0.3% of GDP. This takes into account some weakening of Indian rupee that will partially blunt the impact of the higher tariffs,” Sinha added.

Also Read: Are Trump’s tariff rates made up? Here’s how they may have been calculated

In its latest report on reciprocal tariffs, Jefferies Equity Research stated that India is working on a bilateral trade agreement with the U.S., set for a late 2025 rollout.

The agreement could lead to higher defence and oil and gas imports from the US, potentially strengthening India’s position in tariff negotiations for its exports.