Trump Tariffs: Electronics, Gems & Jewellery most exposed, auto sector relatively insulated

With the possibility of broad reciprocal tariffs from the US gaining traction ahead of April 2, 2025, India’s export landscape faces significant uncertainty. A report by Madhavi Arora, Lead Economist at Emkay Global Financial Services Ltd., estimates that India could lose approximately $6 billion in exports (0.16% of GDP) under a 10% tariff scenario, with potential losses soaring to $31 billion if tariffs hit 25%.

While the exact nature of tariff implementation remains unclear, a broad country-level tariff appears to be the most likely scenario, posing risks to several Indian industries.

Sectors on the Frontline of Tariff Impact

1. Electronics: A Double-Edged Sword

Electronics, particularly mobile phones, form India’s largest export category to the US, with shipments worth $11.1 billion in FY24. With a sectoral tariff differential of ~9%, exports to the US would be hurt sharply if this was to be implemented. It would also increase costs for US consumers — especially given that a large share of exports consists of iPhones assembled in India.

Higher tariffs could disrupt Apple’s efforts to shift production from China to India, making the US tariffs counterproductive, according to the Emkay Global report.

2. Gems & Jewellery: The Most Vulnerable

The gems and jewellery sector is among the most exposed, with the US accounting for 30% of India’s total exports in this category (~$9.9 billion). Key products like cut and polished diamonds, gold jewellery, and lab-grown diamonds face high risks as the US has lower import tariffs than India. Indian jewellery manufacturers could relocate to countries with lower tariffs, such as Singapore, UAE, or Oman, if hefty duties are imposed, impacting employment in this labor-intensive industry.

3. Textiles & Apparel: Competitive, But at Risk

The textiles and apparel sector, with $9.6 billion in exports to the US, would also be hit by reciprocal tariffs. India has a 9% share in US textile imports but lags behind China, Vietnam, and Bangladesh in apparel exports. However, China’s 40% tariffs imposed by the US could help India remain competitive despite incremental tariff burdens. To counteract potential losses, India may lower tariffs on US cotton imports, currently at 11%, to match preferential rates offered to African nations.

4. Automobiles: Limited Exposure, Some Opportunities

The auto sector is relatively insulated from reciprocal tariffs as India primarily exports auto parts and accessories rather than passenger vehicles. While tariffs on cars and motorcycles could reach 70%, India’s limited exports in these categories minimize the direct impact. However, if tariffs are imposed on auto components, India could still find opportunities as Mexico, Canada, and China — major suppliers to the US — face even higher tariffs.

India’s Strategy: Negotiation and Trade-offs

Given Donald Trump’s love for a deal, Emkay Global believes India should pursue negotiations with the US by offering concessions in some key sectors, which would not hurt domestic industry, but are important politically or economically for Trump, in exchange for tariff mitigation elsewhere.

The brokerage firm identifies these ‘Easy Wins’ as increasing crude oil and natural gas imports from the US, boosting defense purchases and collaborations, lowering tariffs on select agricultural and food commodities and reducing tariffs on foreign electric vehicles (EVs).

Global Tariff War: Limited Short-Term Gains for India

While India could benefit from US tariffs on Mexico and Canada, the integrated nature of North American supply chains suggests that potential gains will be slow to materialize. Additionally, India has not significantly captured the low-skill manufacturing opportunities vacated by China post-COVID, limiting its ability to benefit from a broader global tariff war, according to the report.

Outlook: Navigating Uncertainty

With high-risk sectors like gems & jewellery and apparel facing significant threats and others like electronics and auto components navigating mixed outcomes, India’s response to the impending US tariffs will be crucial. Strategic trade negotiations and policy adjustments will play a pivotal role in cushioning the impact and ensuring resilience in key export sectors.

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