Tariffs may drag down Indian exports to US by 3.5%, SBI report says

If US President Donald Trump implements reciprocal tariffs against India, exports to the US could decline by up to 3.5%, SBI Research said in a report on Monday.

The loss in exports could, however, be squared off by stepping up exports of value-added manufactured goods and pent-up exports in services, the report said.

The SBI report highlighted that the surge in the US economy following covid-19 might be an anomaly, driven by aggressive policies, with long-term projections suggesting a downturn in US GDP growth, and reductions in both US exports and consumer spending.

Trump’s decision to enforce reciprocal tariffs from 2 April will exert pressure on nations like India.

In the nine-month period between April-December of fiscal 2025, India’s exports to the US were valued at $60.04 billion, and imports at $34.30 billion, marking annual increases of 5.76% and 4.63%, respectively. India is the fourth largest US trading partner, following China, Russia, and the UAE.

The report noted a decline in the US’s value-added products, with a concurrent shrinkage in total factor productivity (TFP) growth, an essential gauge of economic efficiency in resource utilization for production.

The study suggested that

Amid global trade volatilities and shifts in tariffs, India could gain from a decline in US value addition, with net saving to GDP ratio at the lowest level since 2011.

Boosting exports in sectors such as machinery, electronics, IT, consulting, and tourism will help India mitigate potential losses due to US tariffs. Moreover, India is increasing exports to the UAE, the UK, Japan, and the Netherlands, it added.

India is engaging in discussions for free trade agreements on both bilateral and regional levels, covering a broad spectrum of issues from tariff cuts across manufacturing and agriculture, to service trade rules, digital regulations like data localization, intellectual property rights impacting pharmaceutical access, and boosting investment.

Over the past five years, India has secured 13 FTAs with partners like Mauritius, UAE, and Australia, and is in talks for FTAs with the UK, Canada, and the EU, focusing on sectors such as services, digital trade, and sustainable development.

The UK FTA is projected to increase bilateral trade by $15 billion by 2030. Future FTAs aim to boost digital trade, with expectations that the digital economy could contribute an additional $1 trillion to India’s GDP by 2025.

The SBI report emphasized the strategic shift toward regional supply chains and how global geopolitical shifts, like the US tariff disputes, are shaping India’s approach to FTAs to stay aligned with worldwide trade dynamics.

The report also mentioned that India’s exports of steel and aluminum to the US would face minimal impact from tariffs, given India’s modest trade deficit in these areas ($13 million for aluminum and $406 million for steel).