Strategy review in light of the US tariffs - 2
…continuing from yesterday.
To assess the impact of the latest changes in tariffs on the Indian exports to the US, on investment strategy and make suitable changes to minimize the adverse impact on investment portfolios, it is important to understand the dimensions of the Indo-US trade, its elasticity to tariffs, and sustainability of tariffs on various merchandise. Given the southward sloping trajectory of the Indo-US strategic relations since 2018, it may also be relevant to speculate a worst-case scenario; and find ways to assimilate that into investment strategy.
Dimensions of Indo-US trade
(Important note: The figures given in the following discussions have been taken from various sources, including the WTO, US trade department and India’s department of commerce. At various places these are reported either for calendar year or financial year. In some cases, these are provisional numbers. There could be some mismatch in terms of CIF and FoB reporting. Besides, I have rounded off numbers for convenience at many places. So please consider these data and pointers just for assessing a broader trend and not for doing any precise analysis. I would also not completely rule out any error in the figures. Readers may want to cross check where numbers appear incongruent.)
The US accounts for one fourth of India’s total exports
The US has been a key trading partner of India in the past three decades. Exports to the US account for more than one fourth of the India’s total
· In 2024, India exported goods worth US$87.3bn to the US; and it imported goods worth US$41.5bn from the US.
· India exported services worth US$41.6bn to the US, and imported services worth US$41.8bn from the US.
· India had an annual trade surplus with the US of appx US$45bn.
· Overall, in FY25, India exported goods and services worth US$821bn, and exported goods and services worth US$915.2bn. In this merchandise export were US$437.4bn, and merchandise imports were US$720.2bn
· The exports to the US constituted ~26% of India’s total exports. However, merchandise exports were slightly less at 20% of the total merchandise exports.
Pharma a key export for India, not so for the US
· Pharmaceuticals are a major part (US$11bn or ~12% of the total merchandise export to the US in FY24) of the Indian exports to the US.
· The US accounts for almost one third of India’s total pharmaceutical exports (FY24-US$31bn). Overall, the US imports pharmaceutical products worth US$180bn annually. Imports from India are thus ~6% of the total pharmaceutical imports. Ireland (28%) and Germany (21%) are major sources of pharmaceutical imports into the US.
· Pharmaceutical products are presently not subject to the reciprocal and penal tariffs announced by the US administration, effective from 07th August and 27th August 2025 respectively.
Precious metals, Engineering goods and Petroleum products are top exports
· In 2024, India exported US$9.2bn worth of precious stones & metals (~10% of total goods exported to the US), US$12.3bn worth of electrical machinery & equipment (~14%), US$11bn worth of petroleum products (~13%) and US$6.7bn worth of nuclear reactors, boiler, and machinery (~7.5%; exempt from the latest tariffs presently).
· Export of Textile, Apparels, etc. was appx US$5.2bn (6%).
· Telecom instruments/electrical parts worth US$2.2bn (2.5%) were exported.
Important to note that a lot of export from India to the US is done using imported raw material. A significant part of gems, precious metal, petroleum products, telecom equipment etc. is re-export of imported inputs after some value addition. Total value addition in these goods is much less as compared to textiles, carpets, pharmaceuticals etc. So, the net economic effect of slowdown in low value addition exports (almost 30% of the total exports to the US) may be much less.
The following is a summary of assessment study on India’s key exports.
High risk of loss in competitive edge
Electrical machinery & equipment — Highly price-sensitive, intense competition from China, Vietnam, Mexico; Indian exporters would lose market share quickly.
Apparel & textiles — Margins are thin, heavy competition from Bangladesh, Vietnam; high tariff would wipe out price competitiveness.
Articles of iron or steel — US can source from South Korea, Mexico, Turkey; India would see sharp volume declines.
Organic chemicals — Competitive global supply from China & Germany; would lose share unless specialized grades.
Medium risk — partial substitution possible
Machinery & mechanical appliances — Some niche segments less replaceable, but mainstream machinery will shift to other suppliers.
Optical/medical instruments — US has domestic production and EU/Japan suppliers; tariffs would hurt Indian share.
Low risk — possible tariff pass-through
Pharmaceuticals — US dependent on India for generics & APIs; short-term volumes unlikely to fall sharply, though margins may compress.
Precious stones/metals — Price elasticity lower; India could pass part of tariffs to US buyers due to skill-based competitive edge.
Mineral fuels — Mostly re-exports/refining trade; US can diversify but switching costs high for certain grades.
Items where US is significantly dependent on India
(High potential to pass on tariffs without major volume loss)
Generic pharmaceuticals & bulk drugs — India supplies 30–40% of US generic prescriptions.
Cut & polished diamonds — India processes ~90% of the world’s diamonds by volume.
Certain specialty chemicals & dyes — Limited alternative suppliers at scale.
Scenario analysis
For many Indian MSMEs — particularly in textiles, leather goods, handicrafts, small engineering components, jewelry, and carpets — the US is not just a large market; it’s often the largest, sometimes contributing 30–70% of annual revenues.
Until now, Indian exporters benefited from relatively low MFN tariffs, often 2–6% lower than competitors. The new tariff wipes out this edge, pushing landed prices above those from Vietnam, Bangladesh, or Mexico — in some cases by 10–15%.
For price-sensitive segments, that is an existential threat.
…to continue tomorrow
Also read
Strategy review in light of the US tariffs
New chapter in Indo-US relations
Speculating Trump’s second term
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