The levies on fully assembled vehicles take effect on April 3 – a day after Trump’s threatened reciprocal tariffs – and will widen to cover auto parts from May 3. The US is India’s second-largest export market for auto parts after Europe, thus posing a challenge for India’s component exports worth an estimated $6.79 billion to that country. That’s about a third of India’s total auto part exports of $21.2 billion in FY24.
Trump says tariffs will force companies to set up factories in the US and, therefore, lead to more jobs.
Indian executives said the US President’s decision doesn’t make economic sense. “The move is untenable,” said an executive at an auto component firm.
‘US Expensive Production Base’
“It will stoke inflation and slow auto sales in the US,” said the executive at an auto component firm.
Since production and labour costs in the US are much higher, automakers will continue to import at 25% duty, eventually jacking up vehicle prices there, said another executive. “Earlier, the US levied zero duties on auto parts imported from India. The assumption behind raising tariffs is it will encourage local manufacturing in the US but the US is an expensive production base,” the executive said.
Auto and component stocks fell on the tariff news. The BSE Auto index dropped nearly 1% as the Sensex rose 0.4%. Tata Motors fell the most, declining 5.6%. Ashok Leyland shed 2.9%, while Mahindra & Mahindra dropped 0.4%. Among auto component makers, Sundaram Fasteners and Samvardhana Motherson International fell 4% and 2.2%, respectively.
Nearly half of all vehicles sold in the US are imported, and about 60% of the parts used in vehicles assembled there come from overseas, according to a White House factsheet.
In FY24, India exported auto components worth $6.79 billion to the Americas, up 4.5% year-on-year, according to the Auto Component Manufacturers Association (ACMA) grouping. About 80% of these are engine and transmission-related parts. About a fifth of the revenue of India’s auto component sector is derived from exports. Of this, 27% is to the US.
Cars eventually sold in the US are also liable to contain sub-assemblies that cross between plants located on either side of the border, particularly Mexico.
Auto component makers with exports linked to the US include Bharat Forge, Samvardhana Motherson, Sona BLW and Ramkrishna Forgings. They didn’t respond to queries.
Auto component makers are hoping for clarity on the impact once the US government releases the list of parts that will attract tariffs. “Given that there is not enough elasticity, if the price of vehicles goes up by 15% in the US, demand will go down by 25% and that may be quite disastrous for the US economy,” said an executive at a large auto component firm who didn’t want to be named.
