Five Reasons Why US Tariffs Will Not Impact India Much - Motilal Oswal

Just a day away, a decade of growing trade ties between India and the United States now faces a crucial test as the Trump administration’s Reciprocal Tariff Plan looms, potentially reshaping the $124 billion bilateral trade relationship.

India, the largest export destination for American goods, enjoyed a trade surplus of $37 billion in 2024, driven by robust exports of electronics, gems, jewelry, and pharmaceuticals. The US accounted for 18% of India’s total exports in 2024, up from just 6% in 2006. Meanwhile, India’s imports from the US, largely energy commodities and machinery, have remained steady at around 6% of total imports.

However, the move by Trump could shift dramatically when the US enacts its Reciprocal Tariff Plan on April 2, targeting countries with trade imbalances. The plan aims to align US tariffs with those of its trading partners, which could see India’s effective tariff rate on exports to the US rise by 12 percentage points. This move comes in response to India’s 12% average tariff on US goods, compared to the US’s 3% on Indian imports.

Analysts warn the plan could dent India’s electronics, pharma, and textiles exports—the key drivers behind its trade surplus—while offering a reprieve due to India’s relatively lower deficit ranking. However, sectors like refined petroleum, gems, and machinery could face steep challenges.

With the first wave of tariffs expected within days, India’s lucrative trade surplus with the US faces an uncertain future, placing decades of economic partnership at risk.

As per a report by Motilal Oswal, there are five reasons why US Tariffs will not impact much. They are as follow:

1.) India’s imports from the US (as a % of total imports) have remained stable at ~6% in CY24 vs. ~5% in CY14

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%).

3) 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%)

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.

5) 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.