India's exports to US could face net impact of $3.1 billion from reciprocal tariffs

Donald Trump

With US President Donald Trump's new tariffs set to kick in from April 2, India’s exports to the North American country could face a net impact of $3.1 billion due to reciprocal tariffs, according to estimates by a new CareEdge Ratings report.

While the direct effect appears limited at 0.1 percent ($3.1 billion) of India’s GDP, concerns persist over broader sentiment risks, Smita Rajpurkar, director, CareEdge Ratings, said while presenting the report in Mumbai on April 1.

An 8 percent differential tariff on Indian exports, combined with an assumed 4 percent exchange rate depreciation of the rupee against the dollar, would result in a net export impact of $4 billion, adjusted for currency fluctuations.

However, the report added, when accounting for price elasticity and uniform additional tariffs across all export categories, the direct loss is estimated at $3.1 billion.

Trump has already announced several tariff measures, including a 20 percent additional tariff on all goods from China and a 25 percent tariff on goods from Mexico and Canada, with Canadian oil subject to a lower 10 percent rate.

Sectoral tariffs have also been introduced, like a 25 percent tariff on all steel and aluminium imports and a 25 percent tariff on automobiles and certain automobile parts, with other industries including semiconductors and pharmaceuticals also on the radar.

With aggregate trade exports at $78 billion, the US is India's largest export destination, accounting for 18 percent of outbound trade.

India imposes higher tariffs on US imports, with a simple average tariff rate of around 11 percent, compared to the US tariff rate of around 3 percent on Indian imports, the report said.

"We have thus made a simplistic assumption that the US will impose an additional 8 percent tariff on all imports from India. We have also made an assumption of some rupee depreciation at 4 percent based on last year's actuals, which would offset part of the impact of the higher tariffs, and have further assumed that the price elasticity of demand for India's exports to the US is 1," said Rajpurkar.

With this we can say that the net impact of the additional tariff would be 4 percent, and assuming uniform additional tariff on all exports, we can see that the direct adverse impact of the reciprocal tariff would be around $3.1 billion, which is 0.1 percent of GDP, added Rajpurkar.