US reciprocal tariffs threaten APAC economies, India’s exposure lower: Moody’s

New Delhi: US reciprocal tariffs are expected to disrupt export demand across Asia-Pacific (APAC), including India, creating challenges for economies with high exposure to US trade, Moody’s Ratings said in a report released on Tuesday.

However, India's exposure is lower than most others in the region, although certain sectors such as food and textiles as well as pharmaceutical products face risks. Ongoing negotiations between New Delhi and Washington are expected to shape the extent of the impact, it said.

To mitigate pressure from reciprocal tariffs, the US and India are in talks, reportedly for New Delhi to lower its tariffs on select US products, increase market access for US farm products and increase US energy purchases, while seeking to initiate a trade deal by the fall of 2025, it said.

India too is expected to face pressure on its exports, particularly in sectors such as textiles, pharmaceuticals and agricultural products. The US plan, which aims to match tariffs with those imposed by its trading partners on US goods, has raised concerns over potential disruptions in global trade flows.

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India has a history of retaliating against the US. In 2018, when the US imposed tariffs on Indian steel and aluminium, India responded by raising tariffs on 29 US products, recovering an equivalent amount in revenue.

If implemented, the policy could have broad consequences for APAC economies, particularly in sectors with significant reliance on US demand, the rating agency said in its report.

The tariffs, proposed under the “Fair and Reciprocal Plan” signed by President Donald Trump on 13 February, aim to align US import duties with those imposed by its trading partners.

While details of the implementation remain uncertain, the policy could take the form of country-wide reciprocal tariffs or a product-specific approach based on existing tariff differentials, it said.

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The US is India's largest trading partner, with bilateral trade reaching a record $129.2 billion in 2024. In FY22, India’s exports to the US stood at $75.60 billion. This grew to $78.31 billion in FY23, and dipped slightly at $77.52 billion in FY24. From April to January of FY25, exports totalled $68.47 billion, up from $62.89 billion during the same months in 2023, commerce ministry data showed.

The US is also likely to factor in non-tariff barriers such as regulatory hurdles, value-added taxes, and trade imbalances, complicating the scope of the plan.

Arguing for lower Indian tariffs, Rahul Ahluwalia, co-founder at Foundation for Economic Development, said, “This is an opportunity for us to move to competitive tariff structures and make our downstream industries competitive. India’s exports have long been uncompetitive globally, because our tariffs keep raw material costs higher than our competitor countries.”

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Additionally, Washington has hinted at potential sector-specific tariff hikes targeting industries such as automobiles, semiconductors, and pharmaceuticals, increasing uncertainty for APAC exporters.

APAC economies are particularly vulnerable due to their trade structures and tariff discrepancies with the US. Countries like India, Vietnam and Thailand maintain higher most-favoured nation (MFN) tariff rates compared with the US, which imposes a trade-weighted average MFN tariff of just 2.2%, the lowest globally, it said.

Vietnam, which recorded a trade surplus of $123 billion with the US, faces heightened risks of retaliatory action.

Japan and Korea, which benefit from lower tariff rates and existing trade agreements, may find some relief, although their key industries, including automotive and electronics, remain exposed, it said.

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Vietnam has the highest exposure among APAC economies to US demand, with exports to the US accounting for over 6% of its GDP in 2020, according to the Organisation for Economic Co-operation and Development.

The impact of these tariffs could be most pronounced in industries deeply integrated with US supply chains. Electronics, automobiles, chemicals, food, and textiles are among the sectors facing heightened risks.

China, which is already grappling with a fresh round of 10% blanket US tariffs that took effect on 4 February, has so far responded with restraint.

The potential shift in trade policy could also add pressure on regional currencies, with capital outflows and a strengthening US dollar limiting the ability of central banks to ease monetary policies.

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