Trump's tariffs cloud India's March exports

Worried that higher levies may kick in by the time products land on American shores, local exporters are hesitant to ship engineering goods to the US, according to industry representatives. The delay means outbound shipments for the category, which accounts for about a quarter of India’s merchandise exports, are expected to decline in March.

Sea freight, the most common method for bulk overseas trade, typically takes between 25 and 45 days to reach the US. “The concern is that if new tariffs are introduced while goods are in transit, businesses will have to bear the impact of revised duties, which is a significant challenge," said Pankaj Chadha, chairman of the Engineering Export Promotion Council (EEPC). “The easiest solution would be a bilateral deal, but there is no chance of it happening before 2 April."

India's agriculture, diamond and gold, and medical devices are the most at risk from reciprocal tariffs because of the disparity between the duties levied in the US and India. Still, Trump's protectionist measures have set off global uncertainty, which is weighing on overall trade.

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Merchandise exports fell 11% on-year last month to $36.91 billion—below 41.41 billion recorded in February 2024, when supply chain disruptions due to the Red Sea crisis had impacted trade. Merchandise imports, too, dropped 16.34% in February over a year earlier.

Queries emailed to the spokesperson of the ministry of commerce remained unanswered.

‘Exports could worsen’

“As we are in a highly uncertain environment, and the US remains the biggest market for engineering goods, the continuous announcements of reciprocal tariffs on India by the US have put both importers and exporters in a wait-and-watch mode," said Chadha of EEPC. “Many believe that waiting for a month is the best course of action, as shipments may move once the reciprocal duties are officially announced."

Engineering goods exports stood at $109.22 billion in FY24, accounting for about 25% of the total merchandise exports of $433.09 billion. In 11 months through February for the 2024-25 financial year, cumulative shipments rose 7.9% on-year to $105.84 billion. However, these exports snapped a nine-month rising streak to slip 8.64% on-year to $9.08 billion in February.

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"The downturn in exports is a cause for concern for the Indian economy, and it could worsen due to U.S. trade policies. Uncertainty itself is disruptive," said Pronab Sen, economist and former chief statistician of India.

"The real uncertainty lies in the potential retaliatory measures that may come in the future. What we are witnessing now is a slowdown that precedes such actions," Sen said. “So, to say that this decline is entirely due to the US stance may not be completely accurate. It appears to be more linked to the broader economic slowdown."

Textile shipments, another key export from India, also slowed in February. According to quick estimates from the commerce ministry, category exports dropped 10.85% on-year in February.

Apparel exports, however, grew 3.97% on-year in February. The apparel industry, which accounted for 4.15% of the total textile exports worth $36.91 billion in February, is optimistic about the ongoing month.

“March is typically the month of highest export performance across all sectors, including textiles and garments," said Mithileshwar Thakur, secretary general of the Apparel Export Promotion Council (AEPC). “Despite emerging challenges and the looming threat of reciprocal duties by the US, we are confident that the apparel sector will continue to perform well.

Also read | Why India’s electronics sector is least at risk from Trump's tariff scrutiny

‘Difficult days ahead’

Indian exporters are worried about higher duties levied on American goods than what the US charges.

Agriculture and processed food products from India face a duty of 5.29% in the US, but the same category attracts a levy of 37.66% in India. Diamonds, gold, and related exports face a duty of 2.12% in the US versus 15.45% charged here. Domestic textile goods face a duty of 8.99% in the US, while American counterparts are taxed at 10.37% on Indian shores.

Medical, leather, and other products from India face a duty of 9.70% in the US against 2.79% in India.

Also read | Textiles sector eyes zero tariffs in India-US trade

“Traders are cautious about sending their shipments, with exporters adopting a wait-and-watch approach," said S. Ramakrishna, former chairman and now advisor of the Federation of Freight Forwarders Association of India (FFFAI). "As a result, the flow of shipments is slower than it was during the same month last year."

Thakur said the AEPC has suggested that the Centre consider bringing down the applicable customs duty rates on major apparel products traded with the US to the level of levies in the US. Since apparel imports into India from the US are negligible, the Centre should also consider offering ‘zero for zero’ for all apparel products, he said.

Meanwhile, Trump’s tariff threat may not be the only reason for slowing exports in key categories in March. Ramakrishna said India is also implementing Quality Control Orders (QCOs) and anti-dumping duties to achieve its self-reliance goals, which affects the movement of goods. The proposed 12% safeguard duty on steel would also impact imports and container shipments, he said.

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Biswajeet Dhar, economist and distinguished professor at the Council for Social Development, calls the current period “a phase of uncertainty, where markets have become extremely nervous".

Consumers will also tread cautiously moving forward; they are not going to splurge," he said. “There will be more difficult days ahead."