Trump's 25% Auto Tariffs: The Impact and Implications for India US President Donald Trump has announced a 25 per cent tariff on vehicles not assembled in the US, effective April 3.
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At a time when some of the auto sector members have raised concerns over the trade barrier, stating that it could impact export volumes, supply chains, and investment flows, many have discounted any major effect.
Automotive Component Manufacturers Association of India (ACMA) President Shradha Suri Marwah, said, "We remain hopeful that the ongoing bilateral negotiations between the Indian and U.S. governments will lead to a balanced resolution that benefits both economies. We believe that the strong trade relationship between India and the US, especially in the auto components sector, will encourage continued dialogue to mitigate the impacts of these measures."
According to ratings agency ICRA, as the passenger vehicle (PV) exports from India to the USA represent less than 1 per cent of the total PV exports, the tariff imposition does not have any material impact on the automotive OEMs.
The scenario, however, is different for auto components. On March 12, 2025, a 25 per cent tariff was imposed on all aluminium and steel components imported into the US. Subsequently, on March 26, 2025, a 25 per cent tariff was imposed on other key auto parts as well—including engines, transmissions, powertrain components, and key electrical parts.
Processes are underway to expand tariffs to additional parts, if necessary. While the effective date is still pending, it is expected to be no later than May 3, 2025, ICRA said.
Auto components did not feature in the latest set of additional tariff announcements made on April 2, 2025. "India's auto component exports accounted for approximately 29 per cent of the industry's revenues in FY2024, with around 27 per cent of this going to the US. Although, as the situation is still evolving, the recent tariff-related developments—combined with inflationary pressures and a slowdown in demand in the US—could negatively impact revenues and earnings for component exporters in the affected product categories over the coming months," ICRA stated.
The latest Emkay report suggested that India could lose up to USD 6 billion in exports to the US if the tariffs were set at 10 per cent. If the tariff rate increased to 25 per cent, the losses could escalate to USD 31 billion, with the auto industry being hit hardest, according to a news report.
"Nevertheless, as higher tariffs are also being levied on other competing nations, this could create long-term opportunities for Indian exporters. Exporters dependent on the US market are actively working to diversify their revenue base across other geographies, including Asia. In addition, measures to enhance value addition, diversify into non-auto segments, and implement cost-optimisation strategies are being pursued to mitigate the potential impact on margins," said Srikumar Krishnamurthy, Senior Vice President & Co-Group Head, Corporate Ratings, ICRA Limited.
The tariff move could result in an increase in car prices in the U.S. In the event of car prices going up, the U.S car market may witness a steep volume decline, and that can impact revenue for component players supplying parts to the U.S car/light truck industry, said Arun Agarwal, Vice President Research, Kotak Securities.
Talking about the EV market, Vasudha Madhavan, Founder & CEO, Ostara Advisors, a specialist investment banking firm, said that India's recent removal of import duties on 35 key EV battery materials aims to lower production costs and accelerate domestic EV manufacturing. She said since batteries account for 40 per cent of an EV's total cost, this exemption is expected to make EVs more affordable and boost adoption.
"Despite trade tensions, Indian EV manufacturers could find new opportunities. As Chinese imports become more expensive due to U.S. tariffs, India's cost-effective EV models could gain traction in the U.S. market," said Madhavan.
U.S. President Donald Trump listed the high tariffs charged by India on American products as he announced reciprocal tariffs on countries across the board, declaring a 26 per cent "discounted reciprocal tariff" on India.
According to a Reuters report, India has expressed willingness to offer tariff cuts on more than half of US imports worth USD 23 billion, marking one of the largest concessions in years.
