US tariff of 25% puts several sectors at risk, but what's the fix?

India Today

2 days ago

Indian businesses are bracing for a difficult phase after US President Donald Trump announced a 25% tariff on Indian goods starting August 1.The fresh import duty will apply until a trade deal is finalised, and an extra penalty has also been declared for India's oil purchases from Russia, adding further pressure on trade and investment flows.This announcement comes despite multiple rounds of talks between the two countries. India was one of the first to begin trade discussions after the US signalled tariff changes earlier this year.advertisement
While Trump has often called India a 'friend,' his remarks labelling the country a 'tariff king' appear to have taken precedence. However, the US is not exactly clean when it comes to tariffs. While US tariffs on industrial goods remain low by global standards, American policy on agricultural imports tells a different story. Bound tariff rates filed by the United States with the World Trade Organisation (WTO) allow for extraordinarily high ceilings on a number of goods.According to the WTO's Tariff Profiles 2024 and verified by USTR (United States Trade Representative) filings:The US can impose up to 350% duties on certain tobacco products, over 200% on some dairy items like specific milk powders and cheeses, more than 130% on a range of fruits, vegetables, cereals, and prepared foods in certain cases.However, due to the tariffs now applicable from August 1, several industries are now facing uncertainty, with exporters unsure of how much the tariffs will impact pricing, demand and order books.SECTORS UNDER PRESSUREKranti Bathini, Director – Equity Strategy at WealthMills Securities, said sectors like gems and jewellery, seafood exports, and auto components are likely to feel the immediate effects. 'We need to see the final draft, but these segments could be directly impacted by Trump's tariff move,' he said.Dr. Manoranjan Sharma, Chief Economist at Infomerics Valuation and Rating Ltd, described the US tariff as 'problematic in theory and unacceptable in practice.' He said that the move goes against World Trade Organisation rules, particularly the principles of 'Most Favoured Nation' (MFN) and 'Special and Differential Treatment.'India's trade with the US touched $129 billion in 2024, with a trade surplus of $46 billion. 'Given this challenge, Indian industries must think long-term and reposition themselves,' said Dr. Sharma. He listed several strategies sector by sector that could help limit the damage.OIL SECTOR: FINDING NEW SUPPLIERSIndia currently buys nearly 37% of its oil from Russia, mainly due to the discounted prices. The US penalty targeting these imports could raise energy costs.advertisementDr. Sharma said that India must begin looking at other suppliers. 'Diversifying oil imports from countries like Iraq, Saudi Arabia, and the UAE will be key,' he said. At the same time, strengthening trade partnerships with these oil-rich countries could ensure a steady supply.Another long-term approach would be to invest in domestic oil production and speed up development in renewable energy. These steps can help India cut down on its import bill and reduce exposure to external shocks.AUTO SECTOR: EXPLORE NEW EXPORT MARKETSIndian auto component makers and manufacturers may lose out in the short term, especially as they face stiff competition from countries with lower US tariffs.To deal with this, Dr. Sharma suggested that Indian companies explore new export markets in the Middle East and Africa. He also pointed out the need for more government support in the form of production incentives.'Producing more electric or hybrid vehicles could also open up new demand globally,' he added. The world is shifting toward cleaner transport options, and Indian automakers must use this trend to their advantage.AGRICULTURE SECTOR: STAY FIRM, GO MODERNAgricultural exports have always been sensitive in trade talks. India has consistently pushed back on US demands to open its farm and dairy markets. Dr. Sharma believes India must stay firm on this front, as the sector affects both income and employment.advertisementAt the same time, India should look at boosting exports to new regions like the Middle East or Africa.'We should encourage farmers to use modern techniques and technologies to improve crop output and quality,' he said. The government can also help promote value-added products like organic or processed foods.PALM OIL SECTOR: BALANCE IMPORTS AND PRODUCTIONIndia is one of the world's largest importers of palm oil. With trade penalties in play, ensuring stable supplies will be key.'India could boost imports from countries like Indonesia, Malaysia, and Thailand,' said Dr. Sharma. He also noted that reducing tariffs on palm oil might help balance price hikes from other edible oils.In the longer term, increasing domestic palm oil production and adopting sustainable practices can make the sector stronger and more self-reliant.A BROADER ROADMAPDr. Sharma believes this is the time for India to reposition its trade strategy."The Indian industries will be required to do strategic repositioning, accelerate FTAs (e.g., India-UK, India-EU, India-GCC) to ensure tariff-free access for exports, and use the WTO Dispute Settlement Mechanism to challenge unjustified tariffs in a coordinated and concerted manner with a sense of urgency," he said. advertisementIndia also needs better infrastructure to support exports, from ports and cold storage to warehousing and digital tracking. Campaigns to promote 'Brand India' and encourage local manufacturing through PLI schemes can further support the cause.He added that India should also explore trading in rupees with countries like Russia and Iran to reduce dependence on the US dollar.In the coming weeks, much will depend on the details of the tariff draft and how India and the US continue their discussions. While the current situation poses short-term risks, experts believe India has the tools and the opportunity to turn this into a chance for deeper structural reform.'India's strategy in the face of tariff impositions must balance short-term resilience and long-term competitiveness. By diversifying trade partners, promoting self-reliance where possible, investing in export capacity, and deepening trade diplomacy, India can turn the current challenge into a structural transformation opportunity across the oil, auto, agriculture, and palm oil sectors,' said Dr. Sharma.- Ends