India Eyes Relief as One-Fifth of Exports to US Expected to Get Tariff Exemptions

In the middle of intensifying global trade tensions, India could get some protection. An estimated one-fifth of its exports to the U.S. are likely to be exempt from the tariffs hitting other countries. This amounts to roughly $20 billion worth of goods that are supposed to be spared under new U.S. trade rules introduced through an executive order. The total value of Indian goods exported to the U.S. last year was around $91 billion.

Pharma and Metal Exports Stand to Benefit

The biggest winner appears to be the pharmaceuticals sector. Almost the entire category looks set to avoid the increased tariffs. Meanwhile, more than 95 percent of the exports from India's metals industry—think zinc, tin, and copper—are expected to remain unaffected. These tariff exemptions are vital to keeping India’s overall export competitiveness as it pushes much more into the U.S. market, especially in the areas of industrial and healthcare-related exports.

Electronics Sector Faces Challenges

In contrast, India's leading export sector—electronics—will receive only minimal relief. Only 0.6 percent of its trade value will benefit from exemptions. The US imported approximately USD 14.4 billion worth of electronics from India last year, of which the tiny sum of USD 86 million is likely to be exempt. This could hit the already troubled Indian export sector much harder than any other because electronics is India's largest export area, and already the most vulnerable to the kinds of pressures that lead to rising prices and falling profitability.

India Gains as China and Vietnam Face Higher Tariffs

Even with these sector-specific difficulties, India has the chance to gain as the United States hits China and Vietnam—two of its significant manufacturing competitors—with much heftier tariffs. China is now facing cumulative duties of as high as 54 percent on some products, while those same types of goods are now being affected by tariffs that are going up to 46 percent in Vietnam. This is very good news for India, as it is now likely to see a demand boost for exports to the US in sectors where it competes directly with China and Vietnam.

Comparing India’s Position with Other Nations

President Donald Trump signed the executive order; it puts in place a minimum 10 percent tariff on all U.S. trading partners and then adds on top of that based on trade balance grievances. Notably, the order does not mention any specific country by name, but it was clear well before the signing that India was in the sights of this U.S. initiative, and it has been accused by U.S. officials of doing an overall total trade distortion of 52 percent. The U.S. order appears to put the country on notice that from here on, at the very least, it will have to stop charging so many tariffs on U.S. exports.

Partial exemptions from tariffs are not unique to India. Among BRICS countries, South Africa is expected to have 35 percent of its trade exempted, while 33 percent of Israel’s exports are anticipated to escape tariffs. In contrast, European economies such as Germany and France will see only 16 and 14 percent of their exports, respectively, spared by the new taxes.