Indian businesses brace for potential trade impact as US plans reciprocal tariffs

Stock market investors in India are on edge following US President Donald Trump's recent indication that India may face reciprocal tariffs starting 2 April. This announcement comes after the US imposed a 25 per cent tariff on aluminium and steel imports, although these metals account for less than 2 per cent of India’s total exports to the US.

Despite the latest announcement of a pause on tariffs that were earlier announced to be imposed on Canada and Mexico, experts as much as 30 per cent of India’s merchandise exports—approximately $25 billion—could be affected if additional tariffs are implemented. According to Nirmal Bang Institutional Equities, sectors at risk include electronics, automobiles, gems and jewellery, textiles, chemicals, and seafood.

While some chemical exports may face increased levies, pharmaceuticals are expected to remain largely unaffected, given their essential nature for the US market, Business Today reported.

“India holds a significant market share in US textile imports, making it vulnerable to new tariffs, even if the differential rates are relatively modest,” Nirmal Bang stated. The brokerage further highlighted that agricultural goods face the highest tariff differentials between the two nations. However, these products do not constitute a major portion of India’s exports to the US.

The impact of these concerns has already been felt in the stock market, with benchmark indices falling 15 per cent from recent highs. Apurva Sheth of SAMCO noted that 87 per cent of NSE-listed stocks are currently trading below their 40-week exponential moving averages (EMAs), surpassing the lows seen during the June 2022 market downturn.

Historically, such oversold conditions have led to a market rebound as investors seek value-buying opportunities, with expectations that the tariff concerns may already be factored in.

The US National Trade Estimate Report (NTER) 2023 underscored India's high tariff structure, citing an average Most-Favoured-Nation (MFN) applied tariff rate of 18.3 per cent in 2021—the highest among major global economies.

The report highlighted particularly steep tariffs on agricultural products, averaging 113.1 per cent and reaching as high as 300 per cent in some cases. Additionally, India imposes high applied tariffs on various imports, including vegetable oils (45 per cent), automobiles (60 per cent), natural rubber (70 per cent), and alcoholic beverages (150 per cent).

In an effort to mitigate potential trade tensions, India has engaged in discussions with the US while introducing tariff reductions in the Budget 2025. Key measures include cutting customs duties on motorcycles and alcoholic beverages.

Specifically, tariffs on completely built motorcycles were lowered by 10-20 per cent, while duties on semi-knocked down and completely knocked down units were reduced by 5 per cent. Import duties on bourbon whiskey were cut from 150 per cent to 100 per cent, alongside reductions for wines.

Further steps to strengthen trade relations include India's commitment to defence purchases and exploration of oil trade agreements. Analysts suggest that an eventual India-US trade deal could help resolve tariff-related challenges and improve market access for both countries. As the situation unfolds, market participants remain watchful of policy developments and their potential economic implications.