US tariff hike: Emkay Global predicts sectoral disruptions, but limited macro impact

Emkay Global Financial Services expects every 10 per cent incremental US tariff on India to result in an export loss of $6 billion, impacting sectors such as electronics, pharma, apparel, gem and jewellery, agriculture, and petrochemicals...The US President Donald Trump announced that it would implement reciprocal tariffs on India on April 2.

While the nature of reciprocal tariff implementation is unclear, Emkay believes a broad country-level tariff by the US is the most likely scenario, given complications around sector/commodity-level tariffs. The key susceptible sectors, such as auto, pharma, and electronics, are far better placed than feared, whereas apparel, gems, and jewellery are the most exposed.

Having progressed marginally in high-skill product value chains, India has captured only a small share of the low-skill pie that China vacated post-Covid.

India’s exports to the US stood at $77.5 billion last fiscal, contributing 2.1% to GDP, with vulnerable sectors accounting for 1.1% of GDP. Madhavi Arora, Chief Economist at Emkay Global Financial Services. Madhavi Arora, Chief Economist at Emkay Global Financial Services, said India’s exports to the US last fiscal year were $77.5 billion (2.1 per cent of GDP), and the susceptible sectors identified comprised 1.1 per cent of GDP.

Auto, pharma and electronics are relatively well positioned with sectoral nuances insulating them from majority of the tariff hit while gems and jewellery and apparel are less protected and need specific negotiations, she said...The US levy of a 25 per cent import duty on cars will not have much impact as India hardly exports cars to the US. While there is no clarity on a similar levy on auto components, it will have minimal impact on Indian companies as it will push up the manufacturing of US companies.

India’s exports of refined petroleum to the US would be the worst-hit, falling by $2.4 billion, followed by apparel by $1 billion, iron & steel articles, and other textiles.

Electronics were India’s largest export to the US, accounting for $11.1 billion or 32 per cent of its overall electronics exports of $34.4 billion last fiscal year. Interestingly, over half of India’s electronics exports to the US are mobile phones, mostly iPhones assembled in India and shipped for retail to the US. With India imposing 15 per cent tariffs on fully assembled phone imports as against zero tariffs in the US, reciprocal tariffs on India at the same rate would only make iPhones more expensive for US consumers. While India’s export value in an iPhone with a retail price of $1,000 in the US is $500, India’s domestic value-add is just $30, with component imports amounting to $470. The rest is made up of Apple’s licensing and other fees ($450) and US retailer margins $50).

Thus, out of $5.8 billion of India’s smartphone exports to the US last year, actual earnings were only $0.35 billion. After accounting for PLI and other subsidies/concessions, earnings would be close to zero, said Emkay Global.