Industry stakeholders, meanwhile, have requested the government to seek details from their US counterparts of the specific parts and vehicles that will be published in Annex I of the Federal Register-the US government’s daily journal-in the coming days to get clarity on the new tariffs. Trump Wednesday said the 25% tariff on fully assembled cars will take effect on April 3 and would be widened to cover auto parts from May 3.
Extent of Tariff Impact
The US is India’s single-largest export market for auto parts.
The new levies pose a significant challenge to an estimated $6.79 billion worth of India’s car parts exports to the US, comprising as much as a third of its total parts exports of $21.2 billion in FY24.
“Component companies have been asked to share details of the proportion of their production they export to the US. The government has started work to assess the number of companies and the extent to which they will be impacted by the auto tariffs,” a senior executive at a component maker told ET on the condition of anonymity.Additionally, the Centre is examining whether automotive products mentioned under the US-Mexico-Canada Agreement (USMCA) will be exempted from the 25% tariff, which stands to affect competitiveness of similar products made in India. As per information shared with member companies by the Motor Equipment Manufacturers Association of USA (MEMA)-a counterpart of the Automotive Component Manufacturers’ Association in the US-the 25% tariff will not apply to auto parts qualifying under USMCA until a process is established to apply it only to the non-US content that has gone into the making of the parts.”Directionally, Trump has said auto tariffs will apply to all countries, without discrimination. But the understanding is that he means tariffs will apply without discrimination to ‘Most Favoured Nations’ and not those in the tripartite free trade agreement (USMCA),” said a second industry executive. “MEMA had written to the US government to put in place a mechanism wherein auto products qualifying under USMCA will get exemption. We are trying to get more details.”
In international trade, World Trade Organization (WTO) members are obligated to treat all trade partners equally, a principle known as ‘Most Favoured Nation’ (MFN), which means any trade advantage granted to one member must be extended to all. USMCA refers to the tripartite pact between the US, Mexico and Canada which replaced NAFTA (North American Free Trade Agreement) in 2018 under which goods move freely between the three countries.
Meanwhile, auto industry representatives are likely to meet officials from the Ministry of Commerce & Industry and Ministry of Heavy Industries next week to discuss measures to mitigate impact of the new levies.
“It’s likely to be a brainstorming session. It will primarily be about reciprocity. There are many suggestions that are likely to come up. India will give a list of components on which it wants lower duty vis-a-vis others,” said a third executive at an auto component maker.
India levies customs duty of 15% on auto parts imported from the US, as against zero duty currently imposed by the latter on components sourced from India. Trump feels higher tariffs will force companies to invest and set up manufacturing facilities in America, helping generate employment.
Imports of auto parts from the US to India remained flat at $1.63 billion in FY24. The US accounts for about 7% of auto parts imported into India. “Given the small share of US imports into India, the government had — while deliberating on reciprocal tariffs — asked component suppliers here to consider the impact of a lower import duty on parts imported. But now, it’s more difficult, where and how they will find a balance. Theoretically, the customs duty now can range anywhere between 0% and 15%,” he said.
India is currently among the five lowest-ranked parts exporters to the US. The largest are from Korea, Taiwan, Japan, and countries from Europe, said an executive at another component maker.
“If we reduce duty on auto parts to 10% from 15%, India can negotiate with the US for a lower tariff on parts imported from India,” the executive said. According to him, the majority of companies will not have any objection if India decides to cut duties on parts imported from the US or even fully exempts it from duty.
Overall, industry executives expect the higher tariff to instantly dent supply of India-made parts to the US aftermarket. However, parts shipments to US automakers are likely to remain unaffected as the latter cannot change suppliers overnight and start sourcing locally.
“The prices of vehicles in the US because of the import tariff will see a significant increase unless the US government subsidises it to some extent,” the executive said.
