Trump’s 25 Percent Auto Tariff Puts India’s USD 7 Billion Auto Component Exports At Risk

On March 26, US President Donald Trump announced a 25% tariff on all imported automobiles and auto components, set to take effect from April 3. The decision aims to boost domestic manufacturing and generate $100 billion in revenue annually. Automakers importing vehicles and components into the US will face higher costs, which may lead to increased prices for consumers or lower profit margins for companies.

India exported auto components worth $6.79 billion to the US in FY24. The new tariff could affect several Indian suppliers, including Sona BLW Precision Forgings, Bharat Forge and Samvardhana Motherson International Limited (SAMIL). Sona BLW derives 43% of its revenue from US exports, while Bharat Forge earns 38% from the market. With the US previously charging almost no duty on imported auto parts, the new tariff is expected to reduce competitiveness and shrink margins for Indian firms.

Tata Motors’ subsidiary, Jaguar Land Rover (JLR), is significantly exposed to the US market, where it sold around 23% of its global sales in FY24. The company currently exports all its vehicles from the UK and the increased tariff may impact its pricing strategy. JLR may choose to absorb the additional costs, pass them on to consumers, cut operational expenses, or establish a manufacturing unit in the US to reduce tariff exposure.

Saurabh Agarwal, Partner & Automotive Tax Leader at EY India, said, "With US automotive tariffs rising, India's electric vehicle sector has a prime opportunity to capture a larger share of the US market, especially in the budget car segment. China's 2023 auto and component exports to the US stood at $17.99 billion, while India's were only $2.1 billion in 2024, highlighting the potential for growth. To accelerate this, the government should enhance the PLI scheme by including more auto components, opening it to new players, and extending it by two years."

Major economies, including Germany, France, Canada and China, have opposed the tariff decision. Germany has stated that it will not comply and has called for a firm response from Europe. Canada has termed the move a direct attack, while China has accused the US of violating international trade rules.

Ayush Lohia, CEO, Zuperia Auto, "The imposition of a 26% import tariff on Indian auto components in the US is a concerning development that could significantly impact industry exports and business operations. While we understand the US administration's intent to address trade imbalances, we hope that a balanced resolution can be reached through bilateral negotiations between India and the US. It's essential to consider the mutual benefits of our trade relationship and the potential consequences of such tariffs on both economies."

According to the Commerce Department, the U.S. imported nearly 8 million cars and light trucks last year, valued at $244 billion, with Mexico, Japan, and South Korea as the top sources. Auto parts imports totaled over $197 billion, primarily from Mexico, Canada, and China. If automakers pass on the full tariff cost to buyers, the price of an imported vehicle is expected to rise by around $12,500. This would be added to the current average new car price, which is nearly $49,000, making a new vehicle even more out of reach for middle-class buyers.