The proposed punitive or reciprocal tariffs that the US has threatened to slap on Indian exports from April 2 will lead to an average 10% increase in duties from the present levels and will lead to loss of $6 billion to exporters this fiscal, according to a latest report from brokerage Emkay Global Financial Services.
In FY24, the US was the largest trading partner for the nation with around 17.7% of total merchandise exports earnings with trade balance hugely in our favour as exports touched $77.5 billion in FY24 or 2.1% of GDP.
The share of the US in our total merchandise shipments rose from 16.9% in FY20 to 17.7% in FY24, and further to 18% in FY22, which marginally declined to 17.4% in FY23 and inched up to 17.7% last fiscal.
The US tariff rate on Indian goods increased from 2.72% in 2018 to 3.91% in 2021, before slightly declining to 3.83% in 2022, while Indian tariffs on US goods have risen from 11.59% in 2018 to 15.30% in 2022.
According to an analysis by Emkay Global Financial Services, which believes that the US will come out with a broad country-level reciprocal implementation from April 2, this could result in a 10% tariff on Indian exports to the US, causing a loss of $6 billion to exporters or or 0.16% of GDP, and in total the country may lose $10 billon in export value overall.
The brokerage also believes the US will continue to use tariffs as a bargaining tool with other countries, so this may not be the end of the resolution, but a start of another leg of tariff noises.
The punitive tariffs would potentially lead to a loss of $6 billion or (0.16% GDP) in exports to the US at 10% broad tariffs, with this rising to $31 billion if the tariffs come in at 25%.
Pharma, auto and electronics are better placed than feared, whereas apparel and gems and jewellery are the most exposed. Tariffs on Mexico and Canada offer some potential opportunities for our exporters, but such gains will take time to accrue given the highly integrated North American supply chains.
We will need to strive harder to gain market share in this new leg of global trade war. At the end of it, our view is that the tariff will not be a big blow to us, as the negotiations will be fruitful, with a slight impact on overall exports to the US, according to the report.
