India’s exports may face 3-3.5% hit from US tariffs, but trade diversification may cushion impact: SBI Research

New Delhi: India’s exports to the US could decline by 3-3.5% if Washington implements reciprocal tariffs next month, but this may be offset by ambitious targets in manufacturing and services, along with efforts to diversify exports, SBI Research said in a report on Monday.

New Delhi also must boost value addition, tap new markets, and establish alternative trade routes from Europe to the US through West Asia, reshaping global supply chains, it said.

The post-covid surge in the US economy may have been an outlier driven by policy stimulus, with long-term trends pointing to a potential slowdown in GDP growth, exports, and consumption, the report said.

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It added that India could benefit amid rising global trade uncertainties and tariff shifts amid a declining trend in US value addition, shrinking total factor productivity (TFP) growth, and the lowest net savings-to-GDP ratio since 2011.

US President Donald Trump plans to roll out reciprocal tariffs from 2 April, targeting nations with trade surpluses against the US.

India, which enjoys a significant trade surplus with the US, is expected to come under pressure with the world's largest economy imposing tariffs on countries that levy higher import duties than them.

Big deficit

The US had a merchandise trade deficit of $35.32 billion with India in FY24.

India’s merchandise trade with the US last fiscal amounted to $119.72 billion, with exports at $77.52 billion and imports at $42.20 billion, according to data from the commerce ministry.

During the April-December period of FY25, India exported goods worth $60.04 billion to the US, and imports were worth $34.30 billion, up 5.76% and 4.63% annually.

The US remains one of India’s largest trading partners along with China, Russia, and the UAE.

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"India has been talking about free trade agreements (FTAs) with several partners – both bilateral and regional – in a bid to boost export-oriented domestic manufacturing...These FTAs cover a wide array of topics, such as tariff reduction impacting the entire manufacturing and the agricultural sectors; rules on services trade; digital issues such as data localization; intellectual property rights that may have an impact on the accessibility of pharmaceutical drugs; and investment promotion, facilitation, and protection," the SBI Research report said.

"The shift towards regional supply chains and the impact of geopolitical changes, such as the US tariff war are influencing India's FTA strategies to ensure alignment with global trade dynamics," it added.

The report noted the US plan to impose a 25% tariff on all steel and aluminium imports may benefit India, which runs a trade deficit of $13 million in aluminium and $406 million in steel with the US..

"US imports of steel and aluminium have shown an upward trend despite the trade war beginning in 2018. Primary steel imports reached $31 billion in 2024, showing an increase from $29.5 billion in 2018," it added.

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