US President Donald Trump’s determination to impose reciprocal tariffs on exports from India might have a restricted impact, says a latest report. PM Narendra Modi met Donald Trump throughout his go to to the US final week. The assembly between Modi and Trump happened shortly after the American president declared a recent reciprocal obligation construction to counter elevated tariffs imposed by buying and selling allies.
During the tariff coverage announcement, Trump highlighted India’s place as a main nation in phrases of excessive obligation charges. Previously, he had labelled India as a “tariff abuser” and “tariff king”.
So, what will be the impact of US’s reciprocal tariffs on India? Will the harm be in depth on the Indian economic system which is already fighting a slowdown in its GDP development?
A latest State Bank of India (SBI) report means that potential US tariff reciprocity would have restricted results on Indian exports, with an estimated decline of solely 3 to 3.5 per cent, even with tariffs starting from 15 to 20 per cent.
“Tariff reciprocity may turn out to be more of white noise…Our estimates show overall incremental tariff levels even at 15%-20% imposed by USA would still limit the impact on exports to US only in the range of 3-3.5%,” stated SBI in its report.
The report additionally stated that this impact could be negated by greater export objectives, as India has diversified its exports kitty, pitched worth addition, exploring alternate areas and works on new routes that transcend from Europe to USA through the Middle-East, redrawing new provide chain algorithms that foster strategic inclusivity.
India-US Trade Picture
- The United States stays India’s main export market, comprising 17.7% of whole exports in FY24.
- Trade surplus with the US has grown considerably from $7 billion in 2000 to $45.7 billion in 2024.
- The tariff relationship between each nations has developed otherwise, with U.S. charges on Indian items displaying modest fluctuations.
- Statistical knowledge reveals U.S. tariffs on Indian merchandise elevated from 2.72 per cent in 2018 to 3.91 per cent in 2021, earlier than settling at 3.83 per cent in 2022. Conversely, Indian tariffs on U.S. imports confirmed a steeper rise from 11.59 per cent in 2018 to 15.30 per cent in 2022. (Check Tariff Rate Tables)
It’s attention-grabbing to notice that principal exports are directed at US markets, imports sourced from China
SBI’s evaluation means that if the US had been to announce a 20% uniform tariff on Indian exports, it could probably scale back India’s GDP by 50 foundation factors. SBI is fast to notice that this situation is very inconceivable.
SBI calculated potential reductions in Indian exports ought to the US implement a 15% retaliatory tariff (triple the present combination) on India. This evaluation helps perceive how exports reply to tariff adjustments.
India’s 2022 tariff charge stands at 3.8% (presumably growing to roughly 4% in the course of the interim interval). SBI’s calculations point out that a rise to 15% might lead to roughly 3% discount in India’s exports to the US, contemplating anticipated alternate charge depreciation.
India-US $500 billion Trade Plans
India and the United States have agreed to enhance their bilateral commerce to $500 billion by 2030, while growing a framework for a commerce settlement aimed toward decreasing tariffs and enhancing market accessibility.
Following discussions between PM Modi and Trump, a joint assertion outlined their dedication to fostering a commerce relationship that ensures equitable development, safeguards nationwide safety and creates employment alternatives.
“To this end, the leaders set a bold new goal for bilateral trade – Mission 500 – aiming to more than double total bilateral trade to USD 500 billion by 2030. Recognizing that this level of ambition would require new, fair-trade terms, the leaders announced plans to negotiate the first tranche of a mutually beneficial, multi-sector Bilateral Trade Agreement (BTA) by fall of 2025,” it stated.
India’s Export Diversification A Savior?
Whilst the U.S. stays India’s main export market, India is actively working to scale back its market focus danger, says the SBI report.
India is increasing its commerce relationships throughout Europe, the Middle East, and different areas, while reinforcing its provide chain infrastructure to keep export stability.
In the chart beneath, it’s evident that India’s whole export basket reveals India has diversified it throughout years…
India’s revised tariff strategy demonstrates a calculated commerce technique, balancing worldwide relations while safeguarding home sectors. The focus has shifted in the direction of value-added exports, shifting past uncooked supplies to completed merchandise.
This enhanced worth proposition helps keep competitiveness in world markets while probably offsetting the consequences of elevated tariffs.
The report notes India’s growth of environment friendly commerce routes connecting Europe, the Middle East, and the US, decreasing transport prices and enhancing operational effectivity. This provide chain enhancement goals to strengthen India’s worldwide commerce place.
Despite potential US tariff will increase, India’s strategic commerce strategy, mixed with export diversification and provide chain enhancements, suggests continued export development sustainability, the report says.
