Trump’s 25% Tariffs On Automotives A Concern For India’s $7 Billion Export Business

US President Donald Trump on March 26 decided to expand his trade war to the world’s most traded product — automobiles and auto parts — by announcing 25 percent tariffs on them from April 3. This has raised the uncertainty over Indian exports of auto components worth nearly $7 billion to the US and their future growth potential in the North American market.

Citing national security concerns, the White House announced that automobiles would be subject to a 25% tariff starting April 3 — the day after U.S. reciprocal tariffs are set to take effect. Auto parts will face similar tariffs by May 3, 2025, unless these measures are specifically "reduced, modified, or terminated."

Auto components are the only segment where India has a significant presence in the fast-growing US market. The auto component exports to the US stood at $6.79 billion in FY24.

Indian Auto Exporters Fear Selective Relaxations

As per the White House notification, the tariff would apply not only to fully assembled cars but also to key automobile parts, including engines, transmissions, powertrain parts, and electrical components.

According to the Automotive Component Manufacturers Association of India (ACMA)’s annual report for FY24, the US and Europe are the largest export markets for Indian auto components but Asia also remains a key market, although its growth was stable, and Germany is also a notable export destination.

Notably, India’s auto component exports — including drive transmission, steering, and engine components—reached $21.2 billion in FY24, reflecting 5.5 per cent growth. This was primarily driven by robust demand from markets such as North America and Europe, which contributed nearly 32 per cent each.

Reduction Of Import Duty May Not Work

Stressing that the Indian auto sector contributes nearly one-third of the country’s manufacturing GDP, a Global Trade and Research Institute (GTRI) report cautioned against reducing tariffs on passenger cars to avoid US tariffs, warning that such a move could prove counterproductive.

“The Australian experience offers a cautionary tale. When Australia reduced its import tariffs from 45 per cent to 5 per cent in the late 1980s, it paved the way for the eventual collapse of its domestic auto manufacturing industry. With the Indian auto sector contributing nearly one-third of the country’s manufacturing GDP, any similar misstep must be avoided. Preserving the stability of the Indian auto sector is vital,” the report said.

The US imported $89 billion worth of auto parts globally last year, with Mexico accounting for $36 billion, China for $10.1 billion, and India for just $2.2 billion, the GTRI report noted, adding that the new tariffs could also open up export opportunities for India.

“Making these parts in the US is not going to be possible. It will take far too long, and it will be far more expensive, even with the duty,” Vivek Vikram Singh, MD and CEO of Sona Comstar, said on an analyst call on January 23.

“The US automotive industry is fairly large and important to the US economy. If they will put duties on auto component imports from Mexico, China, and India, I have no idea how they will make cars. Or then, they’ll live with cars that are 15 to 20 per cent more expensive,” Singh said.