1 April 2025
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The Economy Observer
Impact of reciprocal tariffs on India to be minimal
India’s US exports of 1.1% of GDP to be the most vulnerable
The US is one of the largest trading partners of India, with bilateral trade of USD124b in CY24. Exports from India to the
US reached USD81b, and imports from India to the US amounted to USD44b, resulting in a trade surplus of USD37b for
India in CY24. The US is India’s largest export destination, with its share reaching 18% in CY24 from 13% in CY14 and 6% in
CY06. Notably, India’s imports from the US (as a % of total imports) have remained stable at ~6% in CY24 vs. ~5% in CY14
(Exhibits 1 and 2).
India’s top exported items to the US are electronics (15.6% of total exports to the US), gems & jewelry (11.5%), pharma
products (11%), machinery for nuclear reactors (8.1%) and refined petroleum products (5.5%). India’s top imported items
from the US are energy commodities like crude oil, natural gas and coal (30.7% of the total imports from the US),
pearls/precious stones (11.8%), machinery (9.5%), electronics (6.8%), and aircraft and parts (4.6%) (Exhibits 3 and 4).
India's goods trade surplus with the US has seen a twofold increase in the past decade, rising from USD19b (0.9% of
India's GDP) in CY15 to USD37b (1.0% of GDP) in CY24. The surge in the trade surplus is primarily attributed to a
heightened trade surplus in electronic items after the implementation of a production-linked incentive (PLI) scheme in
2020. Apart from electronic items, higher exports of pharma and textiles have driven India’s trade surplus with the US
over the past decade (Exhibits 5 and 6).
The Trump administration introduced the Reciprocal Tariff Plan (a strategy to equalize tariffs, taxes and non-tariff
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barriers with other nations) on 13 Feb’25, allowing the US to raise tariffs on countries with a trade deficit. The first set
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of reciprocal tariffs is expected on 2 Apr’25.
The tariff structure shows that India charges higher tariff rates in most product categories. The weighted average tariff
rate imposed by India on imports from the US was ~12% in CY23, while the tariff charged by the US on Indian imports is
~3%, leading to a tariff differential of 9%. This could lead to roughly 12pp (product-level full reciprocity) increase in US
effective tariff rates on Indian imports. Notably, India faces the largest tariff gap vs. other major nations. However, the
US’ trade deficit with India (or India’s surplus with the US) is only the 10th highest among the US’s trading partners,
which might cushion it from specific targeting, in contrast to Mexico, Canada, and China (Exhibits 7 and 8).
To identify the potentially vulnerable sectors, we consider a tariff differential with the US and the value of
exports/imports to/from the US. For this analysis, we divide India’s HS-2 level export data (98 HS-2 codes) into five
categories, depending on the extent of tariff differential and the value of exports:
Category 1:
Higher tariff differential (td>10%) and higher value of exports (x>USD0.5b) assuming trade surplus (TB>0)
Category 2:
td>10% but x<USD0.5b assuming TB>0
Category 3:
td<10% but x>USD0.5b assuming TB>0
Category 4:
td<10% and x<USD0.5b assuming TB>0
Category 5:
items in which India has a trade deficit with the US (TB<0)
Items in category 1 and category 3 are the most vulnerable and more likely to be affected. Items in category 1 have a
higher tariff differential (>10%) as well as a higher value of exports to the US. These include seafood and preparations,
articles of iron and steel, and machinery for nuclear reactors (16.5% of the total exports to the US and 0.3% of India’s
GDP). Items in category 3 have a tariff differential of less than 10% but the value of exports to the US is high, making
them vulnerable to the impact of reciprocal tariffs. These include items like pharma products, gems and jewelry, apparel,
electrical machinery, etc. (62% of the total exports to the US and 1.3% of India’s GDP). All items in these two categories
account for 79% of India’s exports to the US (USD64.1b or 1.6% of India’s GDP) but consist of only 19 of the 98 HS-2 codes
(Exhibits 9, 10, 13, 14).
Within categories 1 and 3, we identify the six most vulnerable and exposed items. These are electrical machinery, gems
and jewelry, pharma products, machinery for nuclear reactors, and iron & steel and seafood. These six items sum to
USD42.2b, amounting to 52% of the total exports to the US and 1.1% of India’s GDP. The exact impact on these sectors is
difficult to quantify as it depends on the sensitivity of exports of these items to an increase in the tariff rate and
movement of the exchange rate (Exhibits 11, 12).
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com)
Tanisha Ladha–
Research Analyst
(Tanisha.ladha@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.