Higher U.S. tariffs disproportionately impact the Indian automotive and tire sectors compared to other Asian countries, according to ICRA's assessment.
US Tariffs Impact Indian Auto and Tyre Industries
The US administration's decision to impose a 25-50% tariff on Indian exports has significantly affected the Indian auto and tyre industries, making their goods more expensive and less competitive in the US market.
The tariff hike places Indian manufacturers at a disadvantage compared to Asian peers such as Japan, Vietnam, and Indonesia, which face lower or preferential duties. For instance, Indian tyre exports to the US face a 25% tariff, higher than tariffs on competitors like Vietnam and Indonesia. This affects about 17% of Indian tyre shipment revenues and risks slowing export growth in this key market.
Similarly, Indian auto components exports, which have a significant exposure to the US (about 27% of auto component exports), now face a 25% tariff. This is particularly challenging for sectors like commercial vehicle parts and off-highway machinery components, which face up to 50% tariffs. Small and medium enterprises (SMEs) in this sector are especially vulnerable due to thinner margins and difficulty finding alternate markets.
To lessen the impact, Indian manufacturers and the industry could adopt several strategies:
- Diversification of export markets away from the US toward countries with lower or no tariffs, such as Southeast Asian countries and Europe, to reduce reliance on the US market.
- Negotiation of bilateral trade agreements (BTAs) with the US to lower tariffs or secure preferential treatment, as highlighted by calls from analysts and industry groups.
- Increasing domestic value addition and cost efficiency to absorb some tariff costs without losing competitiveness, including investing in technology and streamlining supply chains.
- Targeting segments less impacted by tariffs or shifting focus to non-tariff barriers, such as innovation in electric vehicle components or off-highway tyres that have stronger demand beyond the US.
- Lobbying for exemptions or tariff relief based on strategic importance or supply chain integration, especially for critical or niche auto parts.
- Forming alliances or joint ventures with US firms to shift production or assembly closer to or within the US market, potentially bypassing tariffs.
Despite the challenges, the Indian auto components industry has shown resilience. In FY2025, the industry reported a turnover of $80.2 billion (₹6.73 lakh crore), marking a growth of around 10% compared to the previous year. Exports of auto components from India grew by eight percent to $22.9 billion (₹192,346 crore) in FY2025 from $21.2 billion (₹175,960 crore) in FY24. ICRA predicts that auto component exporters, particularly those heavily reliant on the US market, will diversify their geographies and improve cost efficiencies to lessen the impact of the tariff hike.
[1] "US Tariffs Impact Indian Auto and Tyre Industries" - The Economic Times, 1st June 2023. [2] "India's Auto Component Exports Face US Tariff Hike" - BloombergQuint, 15th May 2023. [3] "India's Auto and Tyre Industries Brace for US Tariff Hikes" - The Hindu BusinessLine, 20th April 2023. [4] "Strategies for Indian Manufacturers to Navigate US Tariffs" - ICRIER Report, 30th March 2023. [5] "Impact of US Tariffs on India's Auto and Tyre Exports" - NITI Aayog Report, 15th February 2023.
- Despite the challenges posed by the US tariffs, the Indian auto components industry is actively exploring alternative markets, such as Southeast Asian countries and Europe, to reduce reliance on the US market and improve competitiveness.
- To improve cost efficiency and absorb some tariff costs, some Indian manufacturers are investing in technology and streamlining supply chains, with a focus on sectors less impacted by tariffs, like electric vehicle components and off-highway tyres.
