Indian stock markets took a hit on April 1, with the Nifty 50 and Sensex falling 1% each, as investors fear the impact of U.S. President Donald Trump’s reciprocal tariff announcement on April 2.

This comes despite Indian markets recovering 6% in March, snapping a five-month losing streak. However, experts warn that the rebound could be short-lived, as export-driven sectors like pharmaceuticals, automobiles, and gems & jewellery face significant risks from retaliatory tariffs.

India-US Trade Relations: The Tariff Gap

President Trump has long criticized India’s import tariffs, stating:

“India is one of the highest tariffing nations in the world… it’s brutal, it’s brutal.”

According to Morgan Stanley, India imposes an average tariff of 10.5% on US goods, compared to the 2.7% US tariff on Indian imports. With Trump pushing for "fair trade," sectors where India has high tariffs could see retaliatory duties.

Sectors at High Risk from Trump's Tariffs

1. Pharmaceuticals

• The pharmaceutical sector could face higher tariffs, though the impact might be limited.

• India exports mostly generic drugs to the U.S., which keep medicine prices low for American consumers.

• Higher tariffs would increase drug prices in the U.S., making this a politically sensitive move for Trump.

2. Automobiles

• The Indian auto industry could be hit hard, as Trump has already announced a blanket 25% tariff on all auto imports.

• India’s auto exports to the US totaled $2.6 billion in 2023, mainly auto parts and accessories.

• However, Emkay Global suggests that India is relatively insulated as the US primarily imports auto components rather than fully built vehicles.

3. Electrical Machinery & Equipment (Smartphones)

• Tariffs on Indian electronics exports could rise from 1.2% to 10.8%, according to Barclays.

• Over half of India’s electronics exports to the US are smartphones, primarily iPhones assembled in India.

• With India imposing 15% tariffs on imported smartphones, the US could mirror this, making iPhones more expensive in the US.

4. Textiles & Apparel

• India exported $9.6 billion in textiles and apparel to the US in FY24, making up 28% of its total exports in the sector.

• India has a 9% market share in US textile imports, trailing China (21%), Vietnam (19%), and Bangladesh (9%).

• While China faces a 40% tariff from the US, Vietnam and Bangladesh remain more competitive, potentially reducing India’s share further.

5. Gems & Jewellery – The Most Vulnerable Sector

• This sector is likely to face the highest impact, as 30% of India’s jewellery exports go to the US.

• India imposes a 20% tariff on gold jewellery imports, compared to US tariffs of just 5.5%-7%.

• The US imposes zero tariffs on cut and polished diamonds, while India levies a 5% import duty, making it a prime candidate for retaliatory tariffs.

Market Reaction: Investors Dump Stocks Amid Uncertainty

As concerns over Trump’s tariffs spread, investors reacted swiftly:

• The Nifty 50 and Sensex dropped 1% in intraday trading on April 1.

• Billions were wiped out from market capitalization, as export-driven stocks plunged.

• Pharma, auto, and jewellery stocks faced selling pressure, while gold prices surged, as investors sought safe-haven assets.

The Bigger Picture: Could India’s GDP Take a Hit?

According to Motilal Oswal, the six most vulnerable export categories account for $42.2 billion in exports—around 1.1% of India’s GDP.

While India’s March market rebound brought optimism, experts warn that an economic slowdown could follow, particularly if:

• Trump’s tariffs escalate into a full-scale trade war.

• India retaliates with its own tariff hikes, worsening trade tensions.

• Sectors like IT, textiles, and auto see prolonged export declines.

Conclusion

Trump’s reciprocal tariffs pose a significant threat to India’s pharmaceutical, auto, electrical, apparel, and jewellery sectors. With billions in trade at stake, investors are bracing for potential economic shocks.

The final tariff announcement on April 2 will set the stage for how India-US trade relations evolve in the coming months. Markets remain on edge, with investors closely watching how both governments respond.

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