26% reciprocal tariff a mixed bag: India Exim Bank

The India Exim Bank Saturday said that the blanket 26% reciprocal tariff by the US on imports from India is a mixed bag for India with sectors like electrical machinery, textiles and apparel, leather, footwear benefitting and finding an opportunity amidst this while machinery and mechanical appliances, automobile, and iron and steel, being impacted.

Given that India is not an export-led-growth economy with share in global goods
exports being less than 2%, the impact of tariff will be lesser as compared to export driven Asian economies like Taiwan, Thailand, Malaysia, and South Korea, it said.


In electrical machinery, India may capitalize on the tariff differential with its competitors such as China to boost its electronics exports to the US in the long run, it said while for iron and steel, New Delhi can also explore its second highest export market- the UAE.

As per the bank, the ongoing trade negotiations for a Bilateral Trade Agreement (BTA) between India and the US is expected to be instrumental in a possible renegotiation of these high tariff rates which has been imposed on India while also offering room to reassess the non-tariff barrier issues that have been raised by the US in the past.

“In fact, given that the 26% tariff on Indian products is not exorbitant
compared to tariffs imposed on other nations, it allows room for negotiating instead of retaliating,” it said.

However, the impact of reciprocal tariff will be there on GDP, as exports from India contribute to foreign exchange earnings, which supports imports and overall economic growth.

Opportunity sectors

“The imposition of additional 26% tariff on India’s exports to the USA, albeit a shock, also presents a renewed opportunity to India to emerge as a leading exporting hub, particularly for labour-intensive goods,” the bank said.

With the imposition of reciprocal tariffs, India is slated to gain an edge over the other top exporters of textile and apparel
like China, Vietnam, and Bangladesh where the estimated tariff is much higher.

Moreover, India’s high tariff differentials is expected to favour India’s textile exports.
As per estimations, Cambodia and Bangladesh are expected to face tariff rates of 62% and 49.8% respectively, in comparison to India’s 39.8% for these products. This substantial tariff differential may prove advantageous for India to then increase its textile export flows to the US.

In footwear and parts, India could well position itself to gain from cost advantage
over the leading exporting countries in the sector by focussing on mass production while in leather and articles, the lower tariffs in India will open the window forcontract manufacturers of global brands to expand and come to India.

“As a result, leather goods makers may expect revenues to grow in the US,” it said.

The US’ toy imports from India are expected to be subjected to a tariff rate of 27.8% which issubstantially lower in comparison to China at 64.47%. This massive tariff differential offers an opportunity for India’s toy exporters to capitalized on to boost flows to the US, according to the Bank.