25% Tariff Shock: Why India’s Auto Industry May Still Have the Edge
President Donald Trump has announced a 25% import tariff on cars and auto parts entering the United States, aimed at reducing trade deficits and countering foreign trade barriers. These tariffs are scheduled to come into effect on April 2, with duties on vehicles starting the following day and on auto parts expected by May or later. The proposed levies will apply not just to fully assembled vehicles, but also to key components such as engines, transmissions, powertrain parts, and electrical systems — and will be in addition to existing duties. The White House projects these tariffs could generate $100 billion in additional annual revenue. There is a possibility of exemptions or reduced rates for some trading partners, but this move signals an escalation in global trade tensions.
India’s Response to the Union Budget
In what appears to be a pre-emptive move, the Indian government announced import duty cuts in the 2025–26 Union Budget. Duties on high-end motorcycles (above 1,600cc) were reduced from 50% to 30%, and duties on semi-knocked down (SKD) and completely knocked down (CKD) units were lowered to 20% and 10%, respectively. For imported cars priced above $40,000, the basic customs duty was slashed from 125% to 70%, though a new 40% agriculture cess keeps the effective duty at 110%. While these changes suggest openness to trade, experts believe they are more symbolic than structural and intended to manage optics amid rising trade scrutiny.
India’s Automakers Go Global — With Minimal Exposure to US Tariff Heat
India exported approximately 6.7 lakh vehicles in 2024, with exports now accounting for 15–16% of total domestic automotive sales. Automakers like Maruti Suzuki and Kia Motors are increasingly focusing on exports as a key growth strategy. While earlier shipments were largely directed at Africa, Latin America, and South Asia, Indian-made vehicles are now reaching developed markets like Japan, highlighting their rising global competitiveness. Notably, SUVs now make up about 40% of India’s vehicle exports, reflecting shifting consumer demand worldwide.
However, when it comes to the United States specifically, the export exposure remains relatively limited. According to the United Nations COMTRADE database, India exported motor cars and vehicles worth just $37.11 million to the US in 2023. Given this small share, the direct impact of US tariff hikes on Indian automakers is expected to be limited.
Moreover, India’s growing trade partnerships — including recent FTAs with Australia, the UAE, and the European Free Trade Association (EFTA) — are opening up new markets and are expected to further bolster the country’s automotive export momentum.
The new US tariffs could particularly affect foreign luxury carmakers like Tata Motors-owned Jaguar Land Rover (JLR), which sold 116,294 vehicles in the US last year, making it the company’s largest market, ahead of the UK and China. The UK government is in talks with Washington in hopes of securing a trade deal before the tariffs take effect.
Auto Parts in the Crosshairs: Can India Withstand the US Tariff Challenge?
Indian auto component manufacturers are particularly vulnerable to rising protectionism, with exports to the US expected to touch $7 billion in FY25 — a sharp contrast to the relatively low $1.4 billion worth of imports from the US. This significant trade imbalance highlights the US’s importance as India’s largest export market for auto components, accounting for nearly 33% of India’s total auto component exports.
However, India’s overall share in the US auto component import basket remains modest, estimated at just around 2% of the US’s total auto component imports — which exceed $300 billion annually. This suggests that while Indian suppliers are growing their presence, they are still relatively small players in a highly competitive landscape.
The 25% US import duty could pose a threat by making Indian exports less price-competitive, particularly for Tier-1 and Tier-2 suppliers that rely heavily on the US for revenues. Nevertheless, India’s relatively low import duty structure — ranging between 5% and 15% for auto components — allows for greater price flexibility and resilience in a retaliatory tariff scenario. Indian suppliers could still remain cost-effective compared to countries like Mexico or China, where cost structures are often higher or less predictable due to geopolitical factors.
In anticipation of such risks, several Indian auto component players have diversified their manufacturing base, with companies like Samvardhana Motherson, Bharat Forge, and Anand Group establishing facilities in the US or Mexico. This not only helps them circumvent tariff barriers but also positions them closer to key OEM customers in North America — a strategic advantage in times of trade turbulence.
Moreover, Indian auto components have earned a reputation for quality, reliability, and competitive pricing, allowing them to successfully tap into mature markets like the US, Europe, Japan, and South Korea. Backed by free trade agreements (FTAs) with Japan and Korea, Indian exporters already benefit from smoother access to key Asian markets, reinforcing the view that India’s component industry is globally competitive and capable of weathering policy-driven disruptions.
Conclusion
For India, the situation presents both a risk and an opportunity — while higher tariffs in the US could impact exports, India’s relatively low-duty regime and cost structure may help it gain ground against competitors like Mexico. Strategic moves such as FTAs, tariff adjustments, and expanded export focus position India to potentially emerge stronger in the global auto and components supply chain.
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