Auto Components Under Fire: Indian Exports Hit by New U.S. Trade Sanctions

In a sudden escalation of trade tensions, the United States imposed an additional 25 per cent tariff on a wide range of Indian imports, including auto components, raising the overall duty on some items to 50 per cent. The move, effective August 7, comes despite sustained unease over India's ongoing imports of Russian oil and outstanding disputes over digital taxes and market access.

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Though the passenger car trade between the two countries is negligible, India neither exports nor imports automobiles to and from America, but the effect of the move on auto components remains massive. India's ₹1.6 lakh crore auto component sector, which is export-led growth dependent, is now facing an increase in costs and uncertain access to the second-largest market.

Export Pressures Build: Volume Threats and Margin Loss

Auto parts exports account for approximately 30 per cent of India's total automotive sector revenue. Of which, the U.S. accounts for nearly 27 per cent of the total value of exports. This means approximately 8 per cent of India's auto part production is now exposed to higher tariff risk.

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Experts warn that the move would erode India's cost competitiveness. Competing nations like Japan, Vietnam, and Indonesia have much lower tariffs (15–20 per cent), which now distorts the level playing field. Exposed high-ratio segments like precision forgings, castings, and off-highway vehicle systems will get damaged first. ICRA states that producers can either take the hit or trim margins to keep contracts, which is not feasible in the long term.

Industry Perspectives: Contrasting Views Against Strategic Re-assessment

Shradha Suri Marwah, President, ACMA, saw the strategic significance of US–India trade relations and indicated, "In FY 2024–25, 27% of India's $22.9 billion worth of auto component exports went to the U.S. Though the situation is tough, we are of the view that the strength of our bilateral relationship will lead to fruitful engagement and resolution."

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Saurabh Agarwal, Partner & Automotive Tax Leader, EY India, added the urgency of the necessity to adjust. "While the new bilateral 25% tariff will not hit the majority of India's automobile exports, the initial 25% duty already levied by the U.S. alters the competitive dynamics of the industry. Price and strategy adjustments are needed immediately to protect market share," Agarwal said.

Aman Naagar, MD at AVIS India, referred to a downstream consequence. "The effect will differ segment-wise," he said. "While some domestic production will be aided, those industries that are import-intensive may see a rising cost of inputs. For mobility solutions, staying affordable will mean ongoing regulatory juggling."

Broader Economic Impact: Ripple Effect Across Trade-Dependent Industries

CRISIL estimates that the trade shock could trim 0.2–0.4 percentage points from India's FY26 GDP growth. The Federation of Indian Export Organisations (FIEO) has also pointed to the vulnerability of the MSMEs, which lack the fiscal buffer to absorb unexpected tariff shocks.

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This trend also risks derailing India's overall export-oriented manufacturing strategy, one which the government views as central to achieving its $1 trillion economic target.

Window for Talks Reopens: Hopes for De-escalation

India and U.S. trade officials will resume bilateral talks later this quarter. The priorities of India include relief for priority sectors like auto components, pharmaceuticals, and steel.

In the meantime, Indian businesses are adjusting. Auto component export houses are looking more and more towards Canada and Mexico as fresh assembly or logistics bases to take advantage of their FTAs with the U.S. so that they can avoid the new tariff walls altogether. These nearshoring moves are being supplemented by diversified efforts in Europe, ASEAN, and Latin America.

Also Read: India-UK Free Trade Agreement Signed: Tariffs On Automobiles To Drop, $120 Billion Trade Target Set, More

Looking Ahead: Three Scenarios That May Shape the Sector

Best Case:

A diplomatic solution that results in the rollback of tariffs or industry-level exemptions by Q4, allowing exporters to recover and reprice without heavy losses.

Neutral:

Tariffs persist but spread to other markets while maintaining a partial U.S. presence.

Worst Case:

India retaliates with its own tariffs, triggering a broader trade war that can target EV supply chains, local assembly investment, and global attitudes about India's credibility as a trade partner.