SBI Research: US Tariffs to Have Minimal Impact on India’s Exports

India’s export sector is expected to remain resilient despite US President Donald Trump’s plan to impose reciprocal tariffs, with the impact projected to be limited to a 3-3.5% decline, according to a recent SBI Research report. However, this minor setback is likely to be offset by India’s growing export diversification, higher value addition, and exploration of new trade routes from Europe to the US via the Middle East.

India’s Strategic Response to US Tariffs

SBI Research emphasized that India is well-positioned to absorb the impact of these tariffs due to its diversified export portfolio and growing focus on manufacturing and services. The country has been actively working on alternative trade strategies and supply chain realignments, allowing it to mitigate potential export losses.

Moreover, India stands to benefit from the US tariffs on aluminium and steel, imposed last week. Despite running a slight trade deficit with the US in these sectors—$13 million in aluminium and $406 million in steel—India could leverage these developments to strengthen its export position.

The US reciprocal tariffs are scheduled to take effect on April 2, and discussions between Indian and US officials are ongoing. Union Commerce Minister Piyush Goyal recently met with US Trade Representative Jamieson Greer to explore a mutually beneficial Bilateral Trade Agreement (BTA). Goyal reaffirmed that India’s trade policies would prioritize ‘India First’ and ‘Viksit Bharat,’ aligning with the broader Comprehensive Strategic Partnership between the two nations.

India’s FTA Strategy and the Digital Trade Boost

SBI Research also highlighted India’s broader Free Trade Agreement (FTA) strategy, which is increasingly shaping the country’s global trade outlook. Over the past five years, India has signed 13 FTAs, including agreements with Mauritius, the UAE, and Australia. Currently, negotiations are underway with the UK, Canada, and the EU, with a focus on services, digital trade, and sustainable development.

A potential FTA with the UK alone is projected to boost bilateral trade by $15 billion by 2030. Meanwhile, the digital economy is expected to contribute $1 trillion to India’s GDP by 2025, making digital trade a key focal point in upcoming trade agreements. India and New Zealand have also initiated talks for a comprehensive trade deal.

These FTAs encompass a wide range of topics, including tariff reductions, services trade, digital policies like data localization, intellectual property rights affecting pharmaceuticals, and investment protection.

Potential US Economic Slowdown and Global Trade Shifts

SBI Research also noted concerns about the US economy, pointing to signs of a potential slowdown in GDP growth, declining exports, and reduced consumption trends. Structural factors, such as shrinking Total Factor Productivity (TFP) growth and high US wages, could deter new investments. Additionally, US net savings as a percentage of GDP is at its lowest level since 2011 and the second lowest since 1951.

These economic trends, combined with shifting global supply chains, are reshaping India’s trade strategies. SBI Research suggests that India’s ongoing FTA negotiations and supply chain diversification efforts will be key in navigating the evolving global trade landscape.

Conclusion

Despite upcoming US reciprocal tariffs, India’s proactive trade policies and diversification efforts are expected to shield its export sector from significant disruptions. With ongoing trade negotiations and a strong push for digital trade, India is positioning itself to not only withstand tariff challenges but also emerge as a stronger global trade player in the coming years.