Stay Away From These Sectors: Brokerage Warns Ahead Of Tariffs

U.S. President Donald Trump 's reciprocal tariffs are set to go into effect on April 2, a day he has dubbed "Liberation Day."

As per a report by Motilal Oswal Financial Services, the overall impact on India may be minimal, but certain industries are set to feel the pressure. The US is one of India’s largest trading partners, with bilateral trade reaching $124 billion in 2024. 

India exported $81 billion worth of goods to the US, while imports stood at $44 billion, leading to a trade surplus of $37 billion for India. The US is India’s largest export destination, with its share increasing from 6% in 2006 to 18% in 2024. Meanwhile, India’s imports from the US have remained stable at around 6% of total imports in 2024, compared to ~5% in 2014.

Key Indian Exports to the US
India’s top exported items to the US are:
Electronics: 15.6% of total exports to the US
Gems & Jewelry: 11.5%
Pharma products: 11%
Machinery for nuclear reactors: 8.1%
Refined petroleum products: 5.5%

Key Indian Imports from the US
India’s top imported items from the US include:
Energy commodities (crude oil, natural gas, coal): 30.7%
Pearls/precious stones: 11.8%
Machinery: 9.5%
Electronics: 6.8%
Aircraft and parts: 4.6%

Trade Surplus Trends
India’s trade surplus with the US has doubled over the past decade, rising from $19 billion (0.9% of India’s GDP ) in 2015 to $37 billion (1.0% of GDP) in 2024. This growth is primarily driven by increased exports in electronics, pharma, and textiles, supported by India’s Production-Linked Incentive (PLI) scheme implemented in 2020, as per the report. 

Introduction of Reciprocal Tariffs
On February 13, 2025, the Trump administration introduced the Reciprocal Tariff Plan, aimed at equalizing tariffs, taxes, and non-tariff barriers. The first set of reciprocal tariffs is set to take effect on April 2, 2025. The plan allows the US to raise tariffs on countries with which it has a trade deficit.
Tariff Differential: India’s Exposure
India generally imposes higher tariff rates than the US across most product categories. In 2023, India’s weighted average tariff rate on US imports was ~12%, while the US tariff on Indian imports stood at ~3%, leading to a 9% tariff differential. The Reciprocal Tariff Plan could result in a 12-percentage point increase in US tariffs on Indian imports.

Industry-Level Impact
Electronics Sector: Higher Costs for Exports
Electronics make up 15.6% of India’s total exports to the US. With tariff adjustments, higher costs could impact competitiveness in the American market.

Pharmaceuticals: A Critical Export Category
Pharmaceuticals account for 11% of total exports to the US. With India being a key supplier of generic drugs, the industry will closely watch tariff changes for potential cost increases.

Energy and Industrial Imports: Price Pressures
India imports 30.7% of its US-sourced goods in the form of energy commodities such as crude oil, natural gas, and coal. Any tariff increase could affect pricing for these crucial inputs.

Comparative Trade Exposure
Despite the tariff differential, the US’ trade deficit with India ranks 10th among its trading partners, making it less vulnerable to targeted action compared to Mexico, Canada, and China.

Evaluating the Trade Outlook
While India faces exposure to tariff hikes in key export sectors, the overall impact is expected to be mitigated by its diversified trade relationships. As businesses adapt to the new tariff regime, the focus will be on domestic manufacturing growth, trade negotiations, and shifting market strategies to counterbalance potential disruptions.

With trade talks ongoing, industry stakeholders await further clarity on whether the tariffs are a short-term measure or a sign of long-term shifts in US-India trade dynamics.