New U.S. Tariffs Likely to Impact India’s Auto Component Exports

India’s auto component industry is staring at potential short-term hurdles following the U.S. government’s latest trade policy move. U.S. President Donald Trump has announced a 25% uniform tariff on automotive imports, which is expected to have a ripple effect on India’s thriving auto component export sector.

How New U.S. Tariffs Threaten India’s Auto Component Industry

The recent announcement of steep import duties could increase the cost of Indian automotive parts in the U.S. market. Specifically, manufacturers of powertrain systems, engine components, and transmission systems—which form a substantial portion of India’s auto component exports—are likely to feel the pressure. In FY24, India exported $6.79 billion worth of auto components to the U.S., making the American market a crucial destination for Indian suppliers.

Industry experts reveal that Indian exporters had previously enjoyed a price advantage compared to their Chinese and European counterparts. However, the imposition of this new tariff is expected to erode that benefit, potentially leading to a decline in demand from American automakers.

India’s Price Advantage May Diminish Amid New Tariffs

A joint cost analysis conducted by the Automotive Component Manufacturers Association (ACMA) and Boston Consulting Group (BCG) earlier indicated that Indian auto components were approximately 20-25% cheaper than Chinese alternatives in the U.S. market. This was largely due to existing tariffs on Chinese goods.

In Europe, particularly in Germany where Eastern European suppliers dominate, Indian auto parts were still 10-15% more cost-effective owing to lower labor and energy costs. However, the new U.S. tariff structure threatens to neutralize this competitive edge.

Concerns Over Possible Exemptions and Unfair Competition

Adding to India’s concerns is the possibility of selective tariff exemptions. Industry insiders suggest that countries like Mexico or China may receive favorable treatment in the future, potentially putting Indian manufacturers at a competitive disadvantage.

Additionally, there are apprehensions about China’s trade strategies, particularly the use of opaque subsidies to lower global prices artificially. Washington has hinted that it will keep a close watch on such practices to prevent market distortions, but Indian exporters remain wary.

India’s Auto Component Exports: Diversified but Vulnerable

Despite the current challenges, the Indian auto component industry is well-diversified and resilient. In FY24, the sector recorded global exports worth $21.2 billion, reflecting its strong presence in international markets beyond the U.S.

Industry leaders are already contemplating various strategies to mitigate the impact of these tariffs. Potential measures include:

• Improving cost efficiencies

• Exploring alternative supply chain models

• Setting up production units in key global markets

• Strengthening partnerships with automakers outside the U.S.

These steps could help the Indian auto component industry retain its market share amid rising trade barriers.

Indian Government’s Response and Future Trade Talks

The Government of India is actively monitoring the evolving trade landscape. Officials are expected to advocate for fair and equitable market access in upcoming trade negotiations with the U.S. Diplomatic efforts may also focus on securing exemptions or reducing the impact of these tariffs on Indian exporters.

In conclusion, while the new U.S. tariffs pose immediate challenges, India’s auto component industry remains optimistic. By leveraging its global footprint, improving efficiencies, and engaging diplomatically, India can work toward maintaining its position as a leading auto component exporter.