India's Trade Deal with US: A Complex Equation of Tariffs and Exports

Strategic Insights -

As high-stakes talks continue between India and the US on an interim trade deal, the focus is on the tariff rate that the US will impose on India. In April, President Donald Trump announced a 26% reciprocal tariff rate, but later suspended tariffs for all countries to 10%. The latest deadline for tariffs is now August 1, 2025. SBI Research has warned that even if the deal doesn't come through, India can still diversify its exports to counter the negative impact.

Key Takeaways:

  • India's service exports are projected to reach $387.5 billion in 2024-25, driven by robust performance in IT, financial, and business services sectors, implying minimal impact on overall export figures.
  • The US has imposed tariffs on over 20 countries, with Asian countries facing steeper tariff rates compared to India, creating opportunities for Indian exports to enhance shipments to the US, particularly in sectors where India has a revealed comparative advantage.
  • India currently has a relative advantage in chemicals exports to the US, and negotiating tariff reductions below 25% could lead to India gaining a portion of the market share from countries like China, Singapore, Japan, Malaysia, and South Korea.
  • India can capture 2% share from these countries in chemicals exports, adding 0.2% to its GDP, and 1% share from Japan, Malaysia, and South Korea, adding 0.1% to its GDP.
  • India can also gain market share in apparel exports from Bangladesh, Cambodia, and Indonesia, contributing 0.1% to GDP.
  • India is currently reviewing the ASEAN-India Free Trade Agreement to address tariff irregularities and strengthen "rules of origin" provisions, enabling substantial Chinese imports through ASEAN nations.
  • Opportunities exist to enhance exports to Asian nations facing elevated US tariffs, including Indonesian, Thai, and Filipino markets.
  • India is nearing a trade deal with the US, with Commerce Minister Piyush Goyal stating that talks are progressing at a "fast pace".

Statistics:

  • $387.5 billion: Projected service exports of India in 2024-25.
  • 2%: Potential share of market that India can capture from countries like China, Singapore, Japan, Malaysia, and South Korea in chemicals exports.
  • 0.2%: Potential GDP contribution if India captures 2% share in chemicals exports.
  • 1%: Potential share of market that India can capture from Japan, Malaysia, and South Korea in chemicals exports.
  • 0.1%: Potential GDP contribution if India captures 1% share in chemicals exports from Japan, Malaysia, and South Korea.
  • 6%: Current share of US apparel imports held by India.
  • 5%: Potential share of US apparel imports that India can gain from Bangladesh, Cambodia, and Indonesia.
  • $123 billion: Bilateral trade between ASEAN and India in 2024-25.
  • 0.1%: Potential GDP contribution if India gains 5% share in apparel exports from Bangladesh, Cambodia, and Indonesia.

Sources:

  • SBI Research report, no date.
  • "Donald Trump's Tariff Letters" article, TOI Business Desk.