As US tariffs on goods from India are set to reach 50% on Aug. 27, the world’s largest democracy sits at the center of political and economic disputes in Asia and faces peril to its long-term relationship with the US, a close ally.
The outcome of a sixth round of trade negotiations between India and the US is set for Aug. 25 in New Delhi and and there's some optimism it could lead to a lower tariff rate. However, potentially, the outcome could increase US-India animosity lately raised by President Trump’s objections to India’s purchases of oil from Russia.
To be sure, the tariffs will affect US electronics businesses that could be forced to pay more for components and either absorb the costs or pass them along to their buyers. Or, take months to find other suppliers.
“A tariff of 50% will have an impact of passing on that price to consumers or forcing a company to seek an alternative for goods like Mexico or Vietnam, the Philippines or even Taiwan,“ said Ankit Shrivastava, an Indian-American entrepreneur and founder of Enventure , which advises Indian businesses with US ties. Shrivastava is a US citizen and spoke in an online interview with Fierce Electronics.
The supply chain impact from 50% tariffs could mean tremendous impact, he said. Small- and mid-sized American firms in automotive and electronics business may not feel the biggest impact for six to nine months. “The tariffs will affect a lot of businesses and a lot of times the impact is underestimated," Shrivastava said.
The US has imposed a total of 50% tariffs on most Indian goods, with a 25% reciprocal tariff and an added 25% due to India’s purchase of Russian oil. It is one of the highest rates on any US trading partner. Reuters has estimated about 55% of India’s merchandise exports to the US are subject to the tariffs, especially in chemicals and auto components but also textiles, gems and jewelry, leather and marine products. Pharmaceuticals, semiconductors, crude oil and natural gas and critical minerals are exempt from the added 25% tariff. Up to $35 billion in Indian exports to the US are at risk from Trump tariffs, according to UBS India.
While semiconductors are excluded from the newest tariffs, electronics components are still a part of the 25% reciprocal tariffs, which will likely impact GM and Ford directly but many other companies as well. “Auto components and precision engineering are needed by American automakers,” Shrivastava said.
He is hopeful trade talks can bring the total tariff down to more than half the 50% level. Previously, tariffs on India goods were just 10%. “Tariffs have been around 10% so if we get to 15%-17%, that’s still acceptable. Anything beyond 20% means the supply stream will have a lot of strain,” Shrivastava said.
He expressed hopes that a meeting between Trump and Russian President Vladimir Putin on Friday could reflect well on US-India trade negotiations, even as the two are set to meet in Alaska to discuss the future of the war in Ukraine. India has purchased oil from Russia and was even encouraged by the Biden administration to do so, partly as a block on oil purchases from Iran and to maintain stable global oil prices. Trump imposed the added 25% tariff on Indian goods on Aug. 6, due to India’s continued imports of Russian oil.
India has leverage as a member of the BRICS+ countries
What leverage does India have over the US that could help lower tariffs? “What India offers the US is the skill and labor at manufacturing in India, but also the influence India has over the rest of the world,” Shrivastava said. He pointed specifically to India’s alignment with BRICS+ countries (Brazil, Russia, India, China and South Africa, plus others). The combined GDP of the BRICS economies exceed the GDP of the G7 nations while BRICS countries are nearly half the world’s population.
“India’s influence on the BRICS countries alone is something the US administration should value,” he said. “Without doing so, more and more the US is getting isolated.”
In addition to being the world’s largest democracy, he said India will become the third largest economy in little more than two years, up from fifth place. India has leverage in trade that US officials are well aware exists.
Ultimately, Shrivastava said he is optimistic about the future of tariffs and trade talks between India and the US. “I am an optimist, but we need to go step-by-step and I don’t think we’re that far apart. Amid the noise and substance, the conversation will get to the substance.”