U.S. President Donald Trump is expected to impose 25% tariffs on imported automobiles, semiconductor chips, and pharmaceuticals, a move that could have a major impact on global trade. The goal of the tariffs is to boost domestic manufacturing and address what Trump considers unfair trade practices.

Trump has indicated that these auto tariffs could go into effect as soon as April 2, alongside reports from his cabinet on trade measures. When asked about the proposed duties, he mentioned, “I’ll probably tell you more on April 2, but it will be around 25%,” according to Bloomberg.

Impact on India's Economy and GDP

The proposed U.S. tariffs could significantly affect India's economy, especially its export-driven sectors. Key industries such as chemicals, metal products, jewelry, automobiles, pharmaceuticals, and food products are at risk, with potential losses of up to $7 billion annually. This could lead to a slowdown in manufacturing and export growth, ultimately impacting GDP. India may face additional challenges in diversifying its export markets, prompting the government to take steps to mitigate these effects through trade negotiations and strategic adjustments in its trade policies.

The report analyzing the effect of U.S. tariffs on India's GDP, considering both country-level and product-level reciprocity, reveals that India’s exposure to U.S. demand is significantly higher than expected. It’s estimated that about 4.0% of India’s GDP is tied to exports to other countries that are ultimately driven by U.S. demand. This means that the impact of U.S. tariffs could be much greater for India than just a direct effect on exports to the U.S. As a result, the report suggests that India’s domestic GDP growth could experience a slowdown, with the potential impact ranging from 0.1% to 0.6%. This underscores how interconnected India’s economy is with U.S. demand, even through indirect trade channels, and the potential challenges it may face as a result of these tariff changes.

Sectors Facing Potential Impact

Several industries in India, including chemicals, metal products, jewelry, automobiles, pharmaceuticals, and food items, are at risk due to the proposed U.S. tariffs. Exports such as gems and jewelry ($8.5 billion), pharmaceuticals ($8 billion), and petrochemicals ($4 billion) are particularly exposed to these changes.

India's Tariff Disparity and Its Trade Impact

India's average tariff on imports was 11% in 2023, which is considerably higher than the U.S. tariffs on Indian goods, creating an 8.2% tariff gap. Meanwhile, U.S. exports to India, worth around $42 billion in 2024, face higher tariffs, especially on food items (up to 68%) and machinery (7%).

Potential Impact on India's Agricultural Exports

If the U.S. applies reciprocal tariffs on agricultural products, India's farm and food exports could be hit hard. With large tariff differences and lower trade volumes, these sectors are particularly vulnerable to losses from such tariff changes.

Textile, Leather, and Wood Products: Lower Risk

Textile, leather, and wood product industries are less likely to be impacted by the tariffs, as they face smaller tariff differences and have a more limited share of trade with the U.S. Additionally, many American companies that produce these goods in South Asia benefit from India's free trade agreements, helping reduce tariff costs.