Donald Trump’s Reciprocal Tariffs To Impact These Sectors: CRISIL Report

The United States President Donald Trump’s reciprocal tariffs can affect exports of several sectors including steel, aluminium, gems and jewellery, and pharmaceutical products, among others, the ratings agency CRISIL said in a report.

According to CRISIL’s India Outlook Report, Trump’s reciprocal tariffs can impact exports, which accounts for “22% of India’s GDP, adding to the pain from moderating global trade growth and heightened trade uncertainties.”

India’s share in global merchandise exports doubled to 1.8% in 2023 from 0.9% in 2005, whereas its share in services exports rose faster to 4.3% from 2.0%.

The United States accounts for an 18% share in the financial year 2023-24, among India’s export destinations. The country, therefore, plays a very important role in aiding India’s trade expansion plans.

In fact, in the past five years (fiscals 2019 to 2024), while India’s merchandise exports logged a 5%  compound annual growth rate (CAGR), exports to the US grew faster, clocking a 7% CAGR.

India runs a larger trade surplus with the US on merchandise exports, while on the front of services it is relatively more even.

Trump’s reciprocal tariffs might impact the following sectors according to CRISIL’s India Outlook report:  

United States’ move to impose a flat 25% tariff on steel imports from March 12, 2025, compared with multiple lower level levies previously, will have minimum impact on the Indian steel industry. This is due to the fact that only 2% of India’s finished steel exports in the firs nine months were sent to the US.

However, incremental production by US mills to make up for lower imports will reduce exports of steel scrap by the US, which eventually will impact India, as it sources about 14-15% of steel scrap from the US.

Further, steel prices in India could decline due to diversion of exporter inventory and competitive pricing, due to rising global competition.

The Indian government may thus have to step in with a safeguard duty to support domestic capacities and steel prices, which have already been trending at four-year lows.

The US’s move to impose a flat 25% tariff on aluminium imports from March 12, 2025, compared to a raft of lower levies, will now have a negative impact on the domestic manufacturers of the metal as half of their production is currently exported, of which 6% goes to the US.

The US imports a major part of its aluminium from Canada, which, if diverted towards global markets, will create competition for the Indian metal.

This move will have a bearing on India as 26% pf the aluminium scrap India imports comes from the US, and like in the case of steel, US would prefer to recycle its scrap for domestic usage.

The gems and jewellery sector in India relies heavily on exports, with unmounted diamonds and jewellery articles forming a substantial portion
of the outbound trade. Since India is the world’s largest producer and exporter of cut and polished diamonds, it plays an irreplaceable role in
the global diamond supply chain.

Unmounted diamonds which are exempt from duty in the US accounted for 56% of the gems and jewellery export in value to the US and 1.3% of India’s export value in FY24. In FY24, US received 33% of India’s unmounted diamond exports by value.

While the export of gems and jewellery has been declining, an uptick is expected by 2026.

According to the report, the recent indication by the US to impose reciprocal tariffs on its trading partners is likely to have a limited impact on India’s pharmaceuticals sector.

An increase in tariffs could moderately raise the prices of Indian products, which are prominently generic formulations. Notably, some industry stakeholders expect generic pharmaceutical products to be exempt from tariffs, given the US government’s initiative to ‘Make America Healthy Again’, which includes keeping healthcare costs under control.

Therefore, even if tariffs are imposed, bulk of the cost is likely to be passed on to customers, thereby mitigating any potential impact on the generics segment.

In case, the US imposes tariffs on Indian RMGs, the volume and profitability of the domestic players would be affected.

Though US is a significant market for India’s RMG exports, the imposition of duties is likely to have a moderate impact on the volumes.

However, the profitability of RMG players may be affected due to increased traffic, as they will be forced to price their products more competitively, which will ultimately impact the bottom line.

India’s contribution to this sector is about 10% and the reciprocal tariffs on smartphones have a potential to nullify the benefits Indian assemblers get under the PLI scheme and this can make exports to the US challenging.

However, an increase in disposable income due to tax cuts in India can help partially offset a decline in export demand.

The cost of solar installations in the US will increase due to a reciprocal increase in duties on imports of solar modules from India and this can impact annual solar capacity additions.

However, the margins of manufacturers may see a moderate impact due to high concentration on the US market.

Trump’s announcement to impose 25% tariff on auto components from India would reduce the competitiveness of these products in the US market, according to CRISIL’s report.

However, the impact is expected to be limited to a few key exporters, as the domestic OEM and replacement market accounts for ~83% of the market. Demand from OEMs is expected to outpace that from exports and the replacement market, providing a cushion for the sector.

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