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“US-India Trade Dynamics: Impact of 26% Tariff Policy

Overview of the Tariff Policy Recent developments in US-India trade relations have ushered in a period of significant adjustment, following the imposition of a 26% reciprocal tariff on Indian exports. This policy shift is particularly impactful for India's apparel and textile sectors.

Sectoral Impact Analysis

Apparel and Textiles: The US market accounts for nearly 28% of these exports—approximately $10 billion annually—placing immense pressure on industries already grappling with cost escalations and competitive challenges.

Pharmaceuticals: With exports valued at almost $9 billion, this sector has been deliberately exempted, reflecting a targeted strategy to protect critical industries vital for both economic stability and global health.

Automotive Components: Exports reached $5.72 billion in FY24 (27% of the sector’s total), now contending with an existing 25% tariff on auto parts, which threatens established supply chains and cost structures.

Food-Related Exports: Steep tariff differentials hit alcohol and spirits (122.10% increase), dairy products (38.23% increase), and seafood (27.83% increase on $2.58 billion in exports), intensifying market challenges.

Competitive Positioning and Economic Impact

Despite these pressures, India’s tariff rate is relatively competitive compared to rivals like China (34%), Vietnam (46%), Bangladesh (37%), and Cambodia (49%). With an overall GDP impact estimated at just 0.1%, India’s resilient domestic market provides a significant cushion.

Strategic Indian Responses

A smart strategic Indian response, A "zero-for-zero tariff policy" might prove beneficial for sectors like pharmaceuticals, gems & jewelry, and potentially textiles & garments. The tariffs may create strategic opportunities for India to gain market share in specific sectors. With Trump imposing even higher tariffs on China (34%), India could potentially enhance its market position in textiles, clothing, and footwear exports to the US. Ongoing trade negotiations and policy recalibrations are expected to further bolster a more balanced and expansive bilateral trade framework.”