US reciprocal tariffs: As govt weighs impact; pharma, apparels may gain, but auto & metals could take a hit

The executive order signed by the US President on April 2 also exempts, as of now, certain critical minerals, energy products, pharmaceuticals and bullion, from US tariffs.

As markets reacted adversely to the sweeping tariff changes that the US announced for its trading partners, the Indian government said it is engaged with the industry and exporters to assess the situation and examine the implications.

The Commerce and Industry Ministry said it was also identifying opportunities that may arise due to this new development in American trade policy.

In its statement Thursday morning, the Ministry said, “The US President issued an Executive Order on Reciprocal Tariffs, imposing additional ad valorem duties ranging from 10 per cent to 50 per cent on imports from all trading partners. The baseline duty of 10 per cent will be effective from April 5, 2025, and the remaining country-specific additional ad valorem duty will take effect from April 9, 2025. The additional duty on India, as per Annex I of the Executive Order, is 27 per cent.”

Pharma exports exempted

India’s pharmaceutical exports to the US have been exempted from the Trump administration’s “discounted reciprocal tariffs,” set to take effect on April 9. Exports of generic drugs and antibiotics, worth over $8 billion in 2023-24, along with certain petroleum oils ($4.4 billion), stand to benefit from the exemption, which also highlights the critical role they play in public health and economic stability.

As a major supplier of generics and active pharmaceutical ingredients (APIs) to the US, India’s pharma sector saw an immediate market reaction, with stocks rallying. Lupin Ltd shares rose 4.26 per cent to Rs 2,095, Sun Pharmaceutical Industries Ltd gained 3.26 per cent to Rs 1,770, and Cipla Ltd closed 2.92 per cent higher at Rs 1,495.

The latest tariffs also exclude articles of steel and aluminium, as well as automobiles and automotive parts, on which tariffs were announced earlier by the Trump administration.

Apparel exports could gain

India’s apparel exports to the US, exceeding $7 billion in FY24, are also set to be impacted. However, the 46 per cent tariff on Vietnam and the 37 per cent tariff on Bangladesh is likely to give Indian exporters a competitive edge. “Despite the steep tariff hike for India, this appears to be an advantage for the apparel sector, as major competing countries like China, Bangladesh, Vietnam, Cambodia, and Sri Lanka have been slapped with higher reciprocal tariffs by the USA,” said Mithileshwar Thakur, Secretary General of the Apparel Export Promotion Council (APEC).

“The current Trump tariff, however, gives a tariff-based edge to Brazil, Turkey, and other apparel-exporting EU countries like Italy, Germany, and Spain. But, given the intrinsic strength of the Indian apparel sector, its complete value chain, and the impressive range of its offerings, my initial assessment is that this will work in India’s favour, and we should prepare to capitalise on this opportunity,” Thakur said.

Higher tariff on Vietnam could boost smartphone, solar module exports

The new tariffs will impact shipments of smartphones (exports of over $5 billion) and solar PV modules (valued at around $2 billion). With the US being a key market for both these goods, the higher duties pose a significant challenge. But since the tariff on Vietnam — which has a strong presence in these two sectors — is much higher at 46 per cent, the differential could offer India a competitive edge.

Adverse impact on gems and jewellery

The gems and jewellery sector will be one of the most affected since import tariffs may be up to 20 per cent from the current zero per cent on loose diamonds and 5.5-7 per cent on gold jewellery, industry officials said. The US is one of India’s largest jewellery export markets, accounting for almost 30 per cent of the share. Indian jewellery exports to the US are over $11 billion per year. “we foresee a reshaping of global supply chains. In the short run, we anticipate challenges in sustaining India’s current export volume to the US market,” a statement from the Gem & Jewellery Export Promotion Council (GJEPC) said.

Tariffs imposed earlier on auto, steel, aluminium hurt

In late March, the Trump administration had announced a 25 per cent tariff on automobiles and auto parts, set to take effect from April 3. The tariffs cast some uncertainty over India’s $7 billion auto component exports to the US and their future growth in North America.

Earlier, Washington, DC had also announced a 25 per cent tariff on articles of steel and aluminium, effective March 12. While the US ranked only sixth among destinations for India’s iron and steel exports—valued at $476 million in FY24—it was the largest market for iron and steel articles, with exports reaching $2.8 billion in the same period.

The 25 per cent tariff on aluminium imports is also expected to impact Indian exporters, as the US remains their largest overseas market for aluminium products. In FY24, India exported aluminium articles worth $946 million to the US, following two consecutive years of exports exceeding $1 billion.

In touch with the US: Government

Discussions are ongoing between Indian and US trade teams for the swift conclusion of a mutually beneficial, multi-sectoral Bilateral Trade Agreement, the ministry said. These discussions cover a wide range of issues of mutual interest, including deepening supply chain integration. The ongoing talks are focused on enabling both nations to expand trade, investment, and technology transfers, it added. “We remain in touch with the Trump administration on these issues and expect to make progress in the coming days,” the ministry said Thursday.