A new report from SBI Research, released on Monday, suggests that U.S. President Donald Trump’s plan to impose reciprocal tariffs could lead to only a modest 3-3.5% decline in Indian exports. However, the report notes that this potential impact will likely be offset by increased exports driven by India’s diversified export strategy.
Modest Decline in Exports Expected
According to the SBI Research report, “The decline in exports from India to the US could be in the range of 3-3.5% post reciprocal tariffs, if any… which again should be negated through higher export goals across both manufacturing and services fronts, as India has diversified its exports kitty, pitched value addition, exploring alternate areas and works on new routes that transcend from Europe to the USA via the Middle-East, redrawing new supply chain algorithms.”
Impact of U.S. Tariffs on Aluminum and Steel
India is also poised to benefit from the U.S. tariffs on aluminum and steel, which were imposed last week. Although India runs a marginal trade deficit in these sectors—USD 13 million in aluminum and USD 406 million in steel—it is among the top 10 aluminum importers to the U.S., though its share has slightly dipped from 3% to 2.8% between 2018 and 2024.
Despite the small share of the U.S. steel market—accounting for just 1% of imports—India’s aluminum sector is positioned to take advantage of the tariffs imposed by the U.S., potentially helping to reduce the trade deficit.
Diversifying Exports to Counter Tariffs
India’s response to these trade challenges involves diversifying its export base, enhancing the value of its products, and exploring new markets. The country is leveraging emerging trade routes connecting Europe to the U.S. via the Middle East, which could strengthen its position within global supply chains.
The report highlights that India is increasingly focusing on free trade agreements (FTAs) to boost export-oriented manufacturing. “India has been talking about free trade agreements with several partners—both bilateral and regional—in a bid to boost export-oriented domestic manufacturing,” the report states.
India’s Focus on Free Trade Agreements
India has been actively pursuing FTAs to strengthen its manufacturing sector and expand its export capacity. Over the past five years, India has signed 13 FTAs, including agreements with Mauritius, the UAE, and Australia. Currently, India is negotiating FTAs with the UK, Canada, and the European Union, with a focus on areas like digital trade, services, and sustainable development. The FTA with the UK, in particular, is projected to boost bilateral trade by USD 15 billion by 2030.
Digital Trade and Geopolitical Factors Driving Strategy
As India seeks to navigate the global economic landscape, experts believe that its growing digital economy will play a pivotal role in boosting exports. Digital trade agreements, for example, are expected to add up to USD 1 trillion to India’s GDP by 2025. Additionally, India is adjusting its trade strategies in response to shifting regional supply chains and geopolitical shifts, such as the U.S.-China trade war, which has forced countries to rethink their trade relations.
Navigating Uncertainties in the Global Market
With ongoing trade negotiations and an evolving global economic environment, India’s emphasis on FTAs, digital trade, and export diversification positions the country to overcome challenges and emerge stronger in the global market. India’s strategies are helping to mitigate the impact of rising protectionism and shifting supply chain dynamics, potentially offering a more resilient export outlook despite global uncertainties.
