INSIGHT: India may offer tariff concessions to US as PM Modi meets Trump

MUMBAI (ICIS)–India may offer the US tariff cuts on various products, including electronics and automobiles – major downstream sectors of petrochemicals – to avoid US President Donald Trump’s “reciprocal duties”, which may deal a big blow to the south Asian nation’s exports.

• India PM Modi in US for state visit on 12-13 February
• Tariff cuts incorporated in India budget for year to March 2026
• India braces for impact from US’ 25% tariffs on all steel, aluminium imports

Indian Prime Minister Narendra Modi is set to meet with Trump in Washington on Thursday – their first meeting since Trump assumed office for a second term.

The US has not imposed any direct tariffs on India yet. However, the world’s biggest economy is expected to announce reciprocal tariffs on any countries with tariffs on US goods.

India’s tariffs on agricultural, mining and manufacturing products from the US were in double-digits, while US tariffs for the same products from India were in the low single-digit levels.

The south Asian country, which is a giant emerging market in Asia, is expected to offer tariff cuts on more than 30 goods, as well as increase the purchase of US defence and energy products, according to analysts at Japanese brokerage firm Nomura, in a research note on 10 February.

India’s national budget for the next fiscal year starting April 2025 contained provisions reducing import duties on some goods including electronics, textiles, intermediate goods used for technology manufacturing and satellites, synthetic flavouring essences and motorcycles, which are expected to benefit US-based companies.

It was largely seen as a pre-emptive move to thwart reciprocal tariffs from the US under Trump.

India may consider further tariff reductions on luxury vehicles, solar cells, and chemicals, as part of its strategy to maintain smooth trade relations, according to analysts from Nomura.

“We are analysing the announcements made by the US on increasing tariffs,” an official from India’s Ministry of Commerce said.

“We are also asking our industry how these tariffs are going to affect them positively or negatively and are looking at the impact of the tariffs that have already been imposed,” he said.

DIALING DOWN ON PROTECTIONIST STANCE
India has much higher tariff rates compared with other countries in Asia. Amid threats of reciprocal tariffs from the US, India is being forced to backtrack on its protectionist policy, at least where the US is concerned, while maintaining a tough stance on rival Asian giant China.

In year to March 2024, the US was India’s largest export destination and accounted for nearly 18% of the country’s total merchandise exports of $437.10 billion, official data showed.

Key Indian exports to the US include industrial machinery, gems and jewellery, pharmaceuticals, fuels, iron and steel, textiles, vehicles, and chemicals.

US’ exports to India, meanwhile, accounted for just 2% of total US shipments abroad in January-December 2024.

A mutually beneficial tariff regime could be struck between then as India seeks to further boost exports to the world’s biggest economy.

The US’ recent tariff hikes on China opens up opportunities for Indian exporters to increase their share in the US market.

For instance, India’s exports of auto components to the US are currently very low, accounting for only 2% of the US market, underscoring scope for expansion.

Between April and September 2024, the country’s total exports of auto parts stood at $11.1 billion, a third of which – or $3.67 billion – were shipped to the US, according to the Automotive Component Manufacturers Association of India (ACMA).

Over the past few years, India has adopted trade measures like import certification under the Bureau of Indian Standards (BIS), increased antidumping duties on various products, including petrochemicals, to limit imports and boost domestic production.

While some of these policies apply globally, some of them are directed at China, which is a major exporter of goods to India.

While the tariffs are worrisome, certain sectors like auto components, mobiles and electronics, electronic machinery, apparel, leather and footwear, furniture, pharmaceutical and toys could see an increase in demand from US buyers, the commerce ministry official said.

India is a major exporter of pharmaceutical products to the US but relies on China for 70% of raw material called active pharmaceutical ingredients (API).

The US accounted for over 31% of India’s total pharmaceutical exports of $27.9 billion in year to March 2024.

IMPORTS OF US LNG TO GROW; US’ TARIFFS ON STEEL, ALUMINIUM WORRY INDIA
The south Asian country is expected to increase its petroleum product imports from the US, to alleviate trade imbalances.

For the fiscal year 2023-24, India imported $12.96 billion worth of petroleum oil and products from the US, according to official data.

India’s state-owned oil and gas companies, including Indian Oil Corporation (IOC), Gas Authority of India Ltd (GAIL) and Bharat Petroleum Corp Ltd (BPCL), are in active discussions with American suppliers to import more LNG from the US, petroleum secretary Pankaj Jain said on 10 February.

The recent announcement of 25% tariffs on all steel and aluminium imports into the US could heavily impact India.

While Indian steel exports to the US are relatively small, the US tariffs could cause exporting nations to redirect their goods to the Indian markets.

India is both a major exporter as well as importer of steel, on which a basic customs duty of around 7-8% apply – much lower than the US’ 25% – raising fears of supply flooding the south Asian country.

With the US shutting its doors to global steel, the surplus will inevitably be redirected to India, threatening our domestic industry with market distortions, price crashes, and unfair competition, Indian Steel Association (ISA) Naveen Jindal said said in an official statement on 11 February.

“The US, a major steel importer, has historically imposed strict trade restrictions, with over 30 remedial actions in force against Indian steel – some for more than three decades,” Jindal said.

“This latest tariff is expected to slash steel exports to the US by 85%, creating a massive surplus that will likely flood India,” he added.

While only 5% of the total steel exports from India go to the US, the country accounts for nearly 12% of India’s aluminium exports.

Both steel and aluminium industries use chemicals like caustic soda and soda ash during the production process.

Insight article by Priya Jestin

With contributions from Nurluqman Suratman and Pearl Bantillo