How Trump’s Tariffs on India Could Impact Automakers and Boost Chennai’s Economy

India’s auto industry is facing uncertainty as new trade tariffs imposed by the Trump administration take effect. The proposed 27% tariffs could negatively impact major automakers like Tata Motors and Jaguar Land Rover, while companies like Bharat Forge and Motherson Group may benefit unexpectedly.

These tariffs come at a time when global supply chains are already disrupted. However, the reduced tariffs on Chinese auto parts may encourage buyers to consider Indian manufacturers instead, shifting demand towards India.

Although auto components might seem minor—accounting for just 1.8% of India’s total exports to the U.S.—the U.S. is a crucial market, making up 28% of India’s auto parts exports. Successful companies like Bharat Forge and Motherson already have a solid presence in the U.S. market. For instance, Bharat Forge reported that 17.4% of its revenue is generated from its U.S. operations.

Analysts believe that India has a competitive edge compared to other South Asian nations, as the tariffs imposed on these countries are even higher. This situation could work to Chennai’s advantage, given its strong automotive ecosystem, where many major manufacturers are based, including TVS, Hyundai, and BMW.

The Trump administration’s policies currently favor combustion engine vehicles over electric ones. This shift could benefit traditional manufacturers in Chennai, which are more focused on producing petrol and diesel vehicles. Dhananjay Sinha, from Systematix Group, highlighted that these policies align well with India’s auto components sector, which is largely centered around combustion engines.

However, Indian car manufacturers are likely to feel the pressure. For instance, Jaguar Land Rover sees significant sales from the U.S., and the new tariffs might hurt their sales. As Hitesh Suvarna from JM Financial pointed out, the focus on local production in the U.S. means imported vehicles will face tougher scrutiny and costs.

The trade relationship between India and the U.S. has historically been unbalanced. In 2024, India exported $2.8 billion in vehicles and parts to the U.S., while American exports were just $0.42 billion. The tariffs skew this further, with the U.S. facing an average tariff of 24.1% on its exports to India compared to India’s mere 1.1%.

The methods used to calculate tariffs have also come under scrutiny. Analysts argue that U.S. tariff rates seem inflated due to including domestic taxes and other measures that do not accurately reflect trade barriers. This has led to confusion and could complicate negotiations in the future.

In anticipation of these challenges, India has already made some preemptive moves. The government signed a Bilateral Trade Agreement and reduced import duties on select American products like motorcycles and agricultural goods.

As the trade scenario unfolds, some experts warn of a potential economic downturn reminiscent of the 1930s Smoot-Hawley Tariff Act, which led to a significant global decline in trade. Current tariff policies could similarly provoke retaliatory measures from other countries, worsening trade relations.

Although India might benefit from higher tariffs on Chinese goods, the competitive landscape in the U.S. remains a concern. Buyers may seek alternatives from countries like Mexico and Canada, which already have duty-free access.

Mexican auto parts export to the U.S. was $109 billion in 2024—a stark contrast to India’s $2.8 billion. Despite this, Mexico’s capacity constraints could limit its ability to absorb redirected demand from China.

As the situation develops, the Indian auto parts sector is on alert, waiting for the official details on tariffs slated for release by May 3, 2025. Leaders in the industry hope that their concerns may influence the U.S. administration as they navigate this complicated trade scenario.

For continuous updates and analyses, feel free to explore resources from [Crisil] and [JM Financial].



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