How Trump’s 50% Tariff Threat Could Impact India’s $80 Billion Auto Component Industry

The Indian auto component industry is facing a tough time as the U.S. plans to impose high tariffs. Starting August 27, 2025, tariffs could climb to 50% on certain imports from India. Approximately 27% of India’s auto component exports and 17% of tyre exports will be affected.

India’s auto component sector is worth around $80.2 billion, and it has seen solid growth, particularly with exports to the U.S. rising at an impressive 11% CAGR from FY18 to FY24. In FY25, North America was the biggest market for Indian exports, with $7.35 billion worth of goods, marking an 8.4% increase from the previous year. The U.S. alone accounts for about 27% of total exports.

Tariff Implications

Under the new tariff rules, essential parts like engines and electrical assemblies will maintain a 25% duty, aligning with other exporters. However, parts for commercial vehicles and machinery now face a hefty 50% tariff. This change hits major exporters like Bharat Forge, which supplies parts to well-known companies such as Caterpillar and Volvo.

According to ICRA, the previous advantage India had over China in tyre exports may start to disappear as other countries like Vietnam and Indonesia benefit from lower tariffs.

Impact on Profit Margins

Analysts from India Ratings and Research (Ind-Ra) have raised concerns about the industry’s future. While existing contracts may provide some short-term relief, the replacement market is likely to feel the effects immediately.

Shruti Saboo, a director at Ind-Ra, states, “The new tariffs could disrupt growth for India’s auto component exporters. The industry may face pricing pressures and margin risks.” Suppliers may have to consider moving production closer to the U.S. in places like Mexico, which has zero tariffs under the USMCA agreement, although doing so may impact profit margins.

Who Will Feel the Pinch?

Jaguar Land Rover (JLR), a subsidiary of Tata Motors, is particularly exposed. The U.S. made up 33% of JLR’s volume and 23% of revenue in FY24. Higher costs due to tariffs could impact demand in this vital market. The tyre sector, which relies heavily on the U.S., also stands to lose.

Global Context

This tariff hike undermines India’s benefits from the China+1 strategy, which encouraged foreign companies to source from nations other than China. While China still maintains competitiveness despite high tariffs, Southeast Asian countries face lower duties. Mexico is positioned quite well as the biggest beneficiary of this tariff situation.

Future Outlook

Since exports make up 8% of the auto component industry’s revenue, analysts expect short-term disruptions, especially in the replacement and off-highway segments. Experts suggest that diversifying markets, cutting costs, and considering regional manufacturing will be vital for Indian exporters during this challenging period. According to Ind-Ra, “Rationalizing geographies and building resilience will be key for navigating this tariff shock.”

For more detailed insights on trade impacts, you can refer to the Latest Trade Reports.

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