The Trump administration’s sweeping imposition of hefty reciprocal tariffs is a seismic shock to the global trade order. India’s exports to the US will be subject to a 26 per cent tariff. The US is the largest market for India’s engineering exports. Pankaj Chadha, anticipates the sector will take a $4-5 billion hit in the first year in an interview with Surya Sarathi Ray. Excerpts:
Since the US is the top destination for India’s engineering goods exports, how will President Trump’s sweeping reciprocal tariffs impact India’s engineering goods exports?
The general tariff announced by the Trump administration for India is 26 per cent. This is high enough to impact exports from India and hit the businesses. The US is the top export destination for Indian engineering exports. Our exports of engineering goods to the US totalled $17.27 billion for the April-February period of the 2024-25 financial year. It is 8.3 per cent more than what we achieved in the same period of the previous fiscal year.
The reciprocal tariff will certainly impact in the first year or until we expand our presence in other markets. Our preliminary estimate is that engineering goods exports to the US could drop by $4-5 billion in the first year. The exact impact on engineering exports to the US cannot be determined at present, as it will depend on the American market’s ability to absorb these duties.
As India and the US engage in negotiating a bilateral trade agreement (BTA), we hope it will mitigate the impact of the proposed 26 per cent tariff on Indian goods.
As many of our competitors in the US market face similar or even higher tariffs, will it, in any way, help India? Or will trade diversion further hurt the domestic industry?
Yes, it will help India. But the question is how it will impact China. Tariffs on Korea, Japan and India are around the same. We have to see how the American customers respond to the tariff, which is essentially a tax on them. That is the key.
Regarding trade diversion, I don’t think that will be an issue. India is a sufficiently protected market. Tariffs and non-tariff barriers are in place to safeguard our market from a surge in imports. These are sufficient.
China has retaliated by imposing a 34 per cent tariff on US imports. Do you think India should follow suit?
No, not at the moment. We are already in talks with the US for a bilateral trade agreement. We are hoping to get a favourable deal. At this juncture, it would not be prudent to retaliate. Just as in everyday life, in trade, fighting it back is not the solution; instead, it lies in reaching an amicable solution. Hence, a good, favourable bilateral trade agreement is the only way forward. However, if bilateral trade negotiations fail, then we will have to review our position.
What is the way forward for Indian exporters, finding new markets or fighting hard with competitors to retain their share in the US market?
The imposition of the sweeping tariff has dealt a significant blow to the notion that the US is a fair and trusted market. That notion has gone, and we can’t trust the US as a safe bet.
Hence, we have to look out for markets in Latin America, Central America, North Africa and West Africa, which were hitherto uncharted territory for Indian exporters. We need to gain a foothold in these markets to mitigate the impact of higher US tariffs.
Global trade is being increasingly squeezed by protectionist measures, such as CBAM, and the hefty tariffs imposed by the Trump administration. Do you think multilateral agencies, such as the WTO, need to be revamped?
This is going to be the order of the day. We will have to live with that. Multilateral forums have been destroyed. If the most important partner of such forums, such as the US, behaves in this manner, then what is left? The entire WTO is now gone. The significance of the WTO is a big question now. It seems bilateral agreements and FTAs are the wayforward from now on. The era of multilateral dialogue is over.
(The interviewee is Chairman of the Engineering Export Promotion Council (EEPC). Views are personal)
