How Exporters Can Trump Reciprocal Tariffs

When the US raised tariffs on Chinese goods during President Donald Trump’s first term, India was the fourth-largest benefactor, with its export ballooning to  US$4.87 billion in 2016-17 to a US$9.07 billion in 2022-23. However, the outlook appears far less promising for Indian exporters in the Don’s second term. As a MAGA fueled nationalist (some would say, isolationist) fever goes viral in the US, India is among a clutch of nations that can expect to be laid low by a rash of punitive tariffs, starting April 2.

The name of the game is reciprocity: You get as good as you give is the hawkish spirit shaping the protectionist zeitgeist of Trump 2.0’s trade policy. Broken down to numbers it could translate into an outbreak of heightened costs and market disruptions, threatening several key sectors, such as textiles and pharmaceuticals. Put shortly, India’s access to American markets may run into a stiff wind curtain of taxes.

With uncertainties brewing, Minister of Commerce and Trade Piyush Goyal, quipped post an exporters meet on March 13, "With an evolving global trade landscape, we explored ways to expand into new markets and strengthen competitiveness to drive India's export growth." A euphemism for ring-fencing the nation from Trump’s expected tariff barrage.

Sure, in view of the US-led shake-up Indian exporters must gear up to expand their markets; but equally they would need to find other ways as well to inoculate themselves against the impact of reciprocal tariff, if they are imposed.

Worst Affected Sectors

With India’s top export sectors expected to bear the brunt of the new tariffs, there is a growing sense of unease across industrial sectors, including chemicals, metal products, jewelry, automobiles, pharmaceuticals, and food products. A Citi Research report estimates $7 billion loss in annual export revenue owing to these measures, which appear imminent given Trump’s relentless rant about the steep import duties in the country, particularly in the automobile sector, where tariffs exceed 100 per cent. Though it is not clear whether the tariffs will be sweeping or product-specific, industry experts warn that exporters must stay vigilant and prepare for potential disruptions. “If the tariffs are applied at a country level based on the weighted average difference, then the exporters would definitely take a hit. The average tariff on Indian exports will rise sharply by around 7.7%. Even the product level our tariffs are generally making us more vulnerable. For example, auto components, face a tariff burden of approximately 21%” said Dr Ajay Sahai Director General & CEO, Federation of Indian Export Organisations (FIEO).

Once there is clarity on the reciprocal tariff regimen, Indian exporters could work with American partners to mitigate its impact and safeguard existing business relationships, whether by revisiting pricing strategies, renegotiating terms or offering enhanced value propositions.

Reports suggest that the US would impose tariffs based on its deficits with trading partners. Since, tariffs on US imports are considerably higher in India than in Malaysia (1.84%), Vietnam (2.85%) and China (7.13%)14, this could translate into stiffer reciprocal taxes, suggests a CRISIL report. Not surprisingly, a sense of fear is palpable across industry sectors, from electronics and apparel to gems and jewelry.

For example, reciprocal tariffs could price Indian electronics goods, particularlyy smartphones, out of the American market, leaving the field open to a country like Vietnam, which has zero tariffs. Similarly, the auto sectorcould shiftgear toward domestic sourcing in the US even as increased trade barriers thwart Indian exporters.

“A complete shift to the domestic market may not be the answer. Instead, a two-pronged strategy—preserving US ties while seizing new opportunities—is crucial. One approach is to fill supply gaps left by countries facing steeper tariff hurdles, such as China or South Korea," said Ajinkya Firodia, Vice Chairman and Managing Director of Kinetic Engineering Ltd.

However, exporters in the electronic and the gems and jewelry sector are likely to be worst, leading to massive unemployment. The Gem &Jewellery Export Promotion Council (GJEPC) told Outlook Business that if India fails to provide concessions to the US, exports equivalent to 20 tonnes of gold jewllery could get wiped out over time. Said Kirit Bhansali, Chairman, GJEPC: “For every tonne of jewellery produced, approximately 4,000 to 7,000 people are employed, meaning the gold jewellery segment alone could see direct job losses of 100,000 to 150,000.”

How Indian Exporters Are Gearing Up?

Even as geopolitical uncertainties rage, exporters and the government are crafting a strategy to safeguard their interests, focused onexpanding into new export markets andseizing opportunities from the US-China trade war. Alongside, exporters are concerned of Chinese dumping, particularly in the apparel, electronic manufacturing sectors.

“Chinese dumping, provoked by US tariffs, may inundate India with low-cost textiles, severely impacting its textile and apparel manufacturers who may struggle to compete on price.This could further shrink our market share,” said Sudhir Sekhri, Chairman, Apparel Export Promotion Council, AEPC.

For example, President Trump’s decision to slap a 25% levy on all steel and aluminum imports could glut the Indian marketwith excess supplies from China.Naveen Jindal, president, Indian Steel Association (ISA), cautioned that the tariff is expected to slash American steel imports from China by 85%, creating a massive surplus that could flood India. “We need to guard our steel industry against dumping even as India is tries to grow its steel capacity from 180 to 300 million tonnes in double quick time,” said Amarendu Prakash, Chairman, Steel Authority of India Limited (SAIL).

He highlights two critical needs to stave off dumping: Large capital infusion into the sector and protective policies. While the Ministry of Commerce has initiated anti-dumping investigationson various items originating from China, steel remains outside the radar for the moment, though this may change. Says Manish Singhal Secretary General ASSOCHAM:“The US tariff on steel, may lead to an oversupply of cheaper steel, causing demand-supply imbalances and lower domestic prices, thereby hurting local manufacturers—especially small businesses. In response, India might enforce strict anti-dumping measures and consider a 15–25% tax on Chinese steel imports.  Also, in order to avoid trade diversion through ASEAN countries, the government could also consider enforcing the Rules of Origin regulations on imports coming through the ASEAN region.”Adds Hemant Jain, President, PHDCCI “The risk of Chinese dumping is high, as it may offset tariffs by exporting goods below market prices to markets like India to retain dominance.”

If Trump’s warnings are any indication, India’s auto sector could be high on his hit-list, although, on balance, this may be of little concern as India is likely to gain significant competitive advantage over China, reducing its vulnerability. “The emerging EV and electronics component segment—worth $15 to $20 billion—includes battery management, telematics, ADAS, and ABS. With tariffs putting China at a 20–25% disadvantage, India is in a sweet spot, which could allow exports to grow at 20–30% annually,” said Shradha Suri Marwah, President of the Automotive Component Manufacturers Association (ACMA).

Similarly, with the US imposing 20% tariffs on Chinese smartphones and IT hardware, Indian exporters can hope to expand their footprint in the US, especially in categories like smartphones, hearables and wearables, where America is not a key competitor. “The US is a $ 3Tn market and missing this opportunity could push the supply chain to other countries. At the same time, reciprocal tariffs could weaken our positon unless we refine our tariff structure, making it a double-edged sword”, ICEA told Outlook Business in a written response.

Will Custom Duty Cut Help?

In the last Union Budget Finance Minister, Nirmala Seetharaman outlined customs proposals to simplify India's tariff structure and correct duty inversion, aiming to promote exports and facilitate trade. She proposed eliminating seven custom tariff rates for industrial goods, building upon a similar move in the 2023-24 budget.

Not satisfied, in light of the Trump churn, exporters across sectors are pushing for a cut in India’s Basic Customs Duty (BCD) on imports from the US to boost exports. While the commerce ministry has assured protection to domestic exporters, particularly those in labour intensive leather and textiles sectors, representatives of apparel, electronic (particularly semiconductor) and automobile sectors are rooting for a zero-duty regime.

“The Government of India may consider a ‘ZERO for ZERO’ approach for apparel products of strategic interest. Since the tariff gap on cotton apparel is significant, an immediate duty cut on these products, followed by a phased reduction for man-made fibre (MMF) apparel, would be ideal, given MMF’s expected growth,” said Sudhir Sekhri.

A similar case is being made for the auto sector, where lower customs duties could enhance India's price competitiveness in global markets. “A strategic reduction in duties on auto components and finished vehicles would allow Indian exporters to offer more competitive pricing, positioning them as strong alternatives to suppliers from tariff-hit countries like China and South Korea,” said Ajinkya Firodia.

With the US poised to tighten its trade barriers, Indian exporters face mounting challenges. However, strategic tariff reforms, proactive government backing, and competitive pricing could help mitigate risks. By adapting swiftly to shifting trade dynamics, India can turn adversity into opportunity and strengthen its global export position.