the prospect of US reciprocal tariffs during President Donald Trump’s presidency has generated considerable uncertainty for Indian exporters. Reciprocal tariffs mean that the US will reflect the tariff levels India charges on US products, and this could raise trade tensions in light of India’s higher average tariffs. This note examines how Indian exporters are set to counteract this effect, with a focus on government measures, sector-specific responses, and wider market adjustments.
Background on US Tariffs and Reciprocal Policy
The US has traditionally used tariffs to shield local industries, with recent Trump measures aimed at nations such as China, Mexico, and Canada with tariffs of up to 25%.
For India, the emphasis is on retaliatory tariffs, introduced in February 2025, to counter perceived trade imbalances. India charges an average weighted tariff of 9.5% on US exports, while the US charges 3% on Indian exports, making India a high-priority target. This difference has raised alarm about higher costs for Indian exporters, with possible losses of $7 billion per year estimated by Citi Research.
Vulnerable Sectors and Their Exposure
Pharmaceuticals: Responsible for almost $9 billion worth of exports to the US in 2024, this industry is pivotal. Indian generics are in control, providing more than 45% of US generic medicines, fueled by cost-effectiveness. Tariffs might raise the cost of drugs in the US, potentially impacting demand, but the industry is hopeful because of its competitive advantage.
Textiles and Apparel: These high-labor industries are subjected to tariffs of 15-35% on US imports, but their exposure is reduced by lower trade volumes and free trade agreements in favor of US firms in India .
Automobiles and Auto Components: This industry may experience effects, with possible tariff increases influencing export competitiveness, although concrete figures are scarce.
Food Products: Large tariff differentials are risky, particularly for food and farm exports, but volumes of trade are small
Strategies to Counteract Tariffs
Government-Level Negotiations:
The Indian government is also actively pursuing bilateral negotiations, with Prime Minister Narendra Modi’s recent meeting with Trump being on the issue of trade balance (US reciprocal tariff announcement may put India in line of fire: Explained – India Today). India is reportedly mulling tariff reductions on more than 30 products and expanding US imports in defense and energy to de-escalate tensions.
The Federation of Indian Export Organisations (FIEO) has emphasized the imposition of retaliatory tariffs if tariffs are levied, citing previous actions such as raising duties on US apples in 2018.
Boosting Imports from the US
To offset the trade deficit, India is also looking at rising imports of energy (e.g., crude oil and LNG) and defense equipment. The idea is to cut the tariff imbalance and de-escalate, as hinted by FIEO Director General Ajay Sahai .
Market Diversification:
Exporters are turning their attention to other markets, such as Europe, the Middle East, and Southeast Asia, to decrease reliance on the US market. A State Bank of India report states that diversification, as well as greater value addition, can balance out possible export drops . This is especially pertinent because the US contributes 17.7% of India’s overall exports in FY23-24.
Cost Control and Efficiency:
Firms are trying to minimize costs and enhance operational efficiency in order to cushion against possible tariff effects. For example, pharmaceutical companies such as Sun Pharma and Cipla are looking for domestic and emerging markets to insulate themselves from US slowdowns.
Establishing Local Manufacturing in the US:
Certain Indian firms with established US operations, such as Hindalco Industries’ Novelis, can gain from aluminium import tariffs since they are already established in the US market . Establishing new operations is expensive and might not be possible for most, restricting this option to a few companies.
Sector-Specific Responses
Pharmaceuticals: Pharmexcil reports that tariffs would mainly affect US consumers, as Indian generics have saved $219 billion in 2022. Firms are holding bilateral discussions and seeking other markets to lower exposure.
Textiles and Apparel: With lower volumes of trade, the effect is likely to be minimal, with firms taking advantage of existing free trade agreements.
Cars: The industry is gearing up for possible disruptions, with some companies eyeing local manufacturing, but details are few.
Economic Implications and Future Outlook
The effect of US tariffs is likely to be minimal, with a 3-3.5% fall in exports even if 15-20% tariffs are imposed, according to an SBI report. The long-term scenario, however, hinges on the outcome of negotiations and international trade patterns, with India seeking to diversify relations with other regions to make up for any shortfall.
Table: Summary of Key Strategies and Sectors
| Sector | Key Exports to US (2024) | Main Strategy | Potential Impact |
|---|---|---|---|
| Pharmaceuticals | $9 billion (generics) | Bilateral talks, market diversification | Increased costs, possible exemptions |
| Textiles and Garments | Low trade volume | Leverage free trade pacts, cost management | Limited, mitigated by diversification |
| Automobiles | Not specified | Local production, efficiency gains | Potential disruptions, high costs |
| Food Products | Low volume, high tariffs | Diversify markets, negotiate tariffs | High risk, low volume impact |
This table highlights the tailored approaches across sectors, reflecting the diverse challenges and opportunities presented by US tariffs.
Conclusion
Indian exporters are finding their way through a complicated trade scenario with a mix of diplomatic initiatives, strategic imports, and diversification of markets. The short-term impact may be subdued, but the long-term success depends on successful negotiations and dynamic business strategies to ensure robustness in the event of global trade changes.