Trump's tariffs to shake up engineering and electronic goods exports

With the US being the leading destination for India's engineering exports, the sector is likely to suffer till India strengthens its presence in other markets or finds respite for the sector in the upcoming trade deal. India's electronics exports too will face pressure from reciprocal tariffs. However, relatively higher tariffs on rivals like Vietnam, China, Bangladesh and Cambodia could ease some of the impact on India.

"Our preliminary estimate is that engineering goods exports to the US could drop by $4-5 billion in the first year. The exact impact on engineering exports to the US cannot be determined at present since it will depend on the ability of the American market to absorb these duties," said Pankaj Chadha, chairman of the Engineering Export Promotion Council of (EEPC) India.

"Going forward, Indian engineering exporters need to diversify export markets to minimize the impact of the higher US tariff. As India and the US are engaged in negotiating a bilateral trade agreement (BTA) we hope it will lessen the impact of the proposed tariff on Indian goods," Chadha added.

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India's exports to the US in FY24 included $17.63 billion in engineering goods and $10.05 billion in electronics, compared to $18.68 billion and $5.76 billion, respectively, in the previous year, according to the commerce ministry.

During the April-February period of FY25, Indian engineering exports to the US stood at $17.27 billion, registering a year-on-year growth of 8.3% as compared to $15.95 billion in the April-February period of FY2023- 24. During the same period, electronic goods exports to the US stood at $11.87 billion, up from $10.5 billion in the year-ago period.

To be sure, the reciprocal tariff will apply above the basic customs duty, which is nearly zero for most Indian exports to the US. The current average weighted tariff of Indian exports to US is 3.7%. The US's sector-wide average tariffs on India for electronic products stands at 0.41%, according to the Global Trade Research Initiative (GTRI).

Meanwhile, the electronics sector is one of the fastest-growing export sectors for Indian exporters. Smartphone exports to the US have surged substantially from $128 million in 2021-22 to $5.6 billion in 2023-24, in value terms.

According to GTRI, smartphones and telecom equipment drove India's export growth, adding $6.2 billion—17.2% of the total increase from 2017 to 2023.

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"Some of the critical export sectors to the US, like electronics, gems and jewellery will feel the pinch of reciprocal tariffs. However, the point to note is that countries competing with us in the export market for some of these items, like Vietnam, China, Bangladesh, and Cambodia have been hit by even higher tariffs, hence for India the adverse impact on exports could be relatively lower," said Rajani Sinha, chief economist at CareEdge Ratings.

"We expect the overall impact of the reciprocal tariff on India at around 0.2-0.3% of GDP. This takes into account some weakening of the Indian rupee that will partially blunt the impact of the higher tariffs," Sinha added.

In comparison, India's real GDP is estimated to reach ₹187.95 trillion by the end of FY25, with 0.3% of GDP amounting to about ₹0.56 trillion.

However, as it stands, India and the US are negotiating a trade agreement, whose successful conclusion could ease the tariff burden on certain Indian exports.

In its latest report on reciprocal tariffs, Jefferies Equity Research stated that the Bilateral Trade Agreement (BTA) between India and the US could be set for a late 2025 rollout.

The agreement could lead to higher defence and oil/gas imports from the US, potentially strengthening India’s position in tariff negotiations, it added.