Ahead of Indian Prime Minister Narendra Modi’s visit to the United States on February 12 and 13, US President Donald Trump has revealed plans to introduce reciprocal tariffs on all partner countries. The announcement could send ripples across the global economy, with the potential to significantly affect trade relations between the two nations.
During a meeting on Friday with Japanese Prime Minister Shigeru Ishiba, Trump indicated that the proposed tariffs would target a wide range of countries, with a press conference scheduled for Monday or Tuesday, just before Modi's crucial Washington visit. “I’ll be announcing that next week — on reciprocal trade — so that we’re treated evenly with other countries. We don’t want any more or any less,” Trump stated in the Oval Office.
Impact on Indian Business and Key Sectors
The implications of US President Donald Trump’s new tariff strategy are far-reaching, especially for Indian companies. Trump’s statement highlighted the potential impact on the auto industry, notably imported automobiles.
Tesla CEO Elon Musk’s influence in the administration suggests that electric vehicles, particularly those from companies like Tesla, could be central to the administration’s focus. “That’s always on the table, it’s a very big deal,” said Trump about the possibility of higher tariffs on imported cars, “We have to equalise it.”
This new development is expected to affect investor sentiment in India, particularly in the equity and currency markets. Listed companies that supply parts for class 8 trucks to the North American auto market, such as Bharat Forge, Samvardhana Motherson, and MM Forgings, may be directly impacted by these tariffs.
Bharat Forge, for instance, generates around one-sixth of its standalone revenue from North America, according to estimates by Morgan Stanley. The company’s stock has already faced a 12% drop in value since the beginning of the year.
India's Response: Reviewing Import Tariffs
In response to the growing pressure from the US, India is considering reviewing its import tariffs on more than 30 items, including luxury cars and solar cells, ahead of Prime Minister Modi’s US visit. Sources have confirmed to Reuters that such a move could open up the Indian market to global players like Tesla, potentially affecting the domestic automotive sector, including companies like Mahindra & Mahindra (M&M).
Moreover, the US exports various other goods to India, such as crude oil, nuclear reactors, and pearls, all of which could be subject to tariff adjustments.
The Indian IT sector, which accounts for more than half of its software exports to the US and Canada, may also feel the repercussions of these new tariffs. According to the Reserve Bank of India’s estimates, Indian software exports to the US and Canada accounted for 56% of the total in the financial year that ended in March 2023. Major IT players such as Tata Consultancy Services (TCS), Infosys, and Wipro may see a dip in demand for their services due to the changes in trade policies.
In a White House press conference, Trump hinted that the reciprocal tariffs could serve as a substitute for his earlier proposed universal import duties of 10-20% during his campaign. These duties had formed a cornerstone of his economic agenda, which emphasized the need for a more balanced and fair trade system for the US.
The impact of Trump’s impending tariff policies could be profound, not just for India but for the entire global trade ecosystem, with countries like India, which have significant trade with the US, likely to face uncertainty in their economic dealings.
As President Trump prepares to announce reciprocal tariffs on all partner countries, including India, the timing of this move ahead of Prime Minister Modi’s visit to the US is critical. The potential impact on India’s key sectors, such as automobiles and IT, could lead to significant market volatility and trade disruptions. Companies like Bharat Forge, MM Forgings, and major IT players are likely to face challenges as these tariffs may affect their business operations in North America.
India’s response, including reviewing its import tariffs on a wide array of goods, could help navigate these changes, but the situation remains fluid. As both countries approach important talks, this emerging trade dispute may redefine the dynamics of the India-US economic relationship. The full extent of the tariffs' impact will unfold in the coming weeks, with Indian businesses and investors closely watching the developments.