The US President Donald Trump slapped a 25% tariff on foreign-made vehicles, and this is going to hit the Indian automobile market significantly. The imported cars and auto parts tariff will be levied starting from 3 April 2025, and that is taking a toll on the automobile sector as the sectoral indices such as Nifty Auto Index are already down by over 1% today, while BSE Auto Index is about to fall around 1%.
How and why is this Tariff being imposed?
It is the US government under Trump’s supervision that is trying to revive its economy, and one of the major industries is the automobile industry. To revive domestic automotive manufacturing, they have imposed a tariff on auto imports from other countries, which includes India as well.
When tariffs are imposed on imports, then the imports become expensive, which directs the demand towards domestic production. So, the US is trying to incentivize its domestic automakers and boost the industry by levying tariffs.
Now this foreign-made vehicle tariff rate of 25% is not only on fully assembled vehicles but also the auto components, which are significant in any vehicle, such as engines, powertrain systems, transmission systems, and electrical assemblies, all come under the radar of this tariff. The US government is expecting this measure to give them around $100 billion yearly from the auto industry, which can be significant for the US trade policy.
What about the Indian Automobile Market?
If you consider the automobile exports to the US from India, then this tariff may not be much of a concern, as exports to the US are quite small compared to what the Indian auto sector exports to Canada, Mexico, and Japan.
Having said that, the tariff on the auto components is going to hit India’s auto parts industry hard, as auto components’ exports are pretty significant to the US and to other countries as well. India has emerged as one of the prime suppliers of auto components to the US, and this tariff can slash the demand from the US for auto component makers in India.
In 2023, India exported auto components worth around $1.5 billion to the US, and this business can come down significantly with the imposition of the new tariffs. The profit margins of the suppliers can be affected reasonably, and the over-demand can decline from the US-based automobile manufacturers.
Most Disrupted Auto Stocks Post Tariff Announcement
The auto industry shares are highly volatile today, and the most affected stocks include –
Tata Motors has been one of the most affected automobile stocks after the tariff announcement. The share price of Tata Motors has dipped by over 5.5% today as investors are expecting significant trade disruptions because the automaker exports a significant number of Jaguar Land Rovers to the US.
Motherson Sumi is next in the fire range as it is one of the largest Indian suppliers of auto components to the US. The share price dropped by 3.06% as of 1:30 pm today.
Ashok Leyland’s share price dropped 1.75% as well, followed by Bharat Forge, which dipped 1.38%.
Silver Lining for India
While the imposition of tariffs is undoubtedly posing a threat to the global supply chain of automobiles but it can be a silver lining as well. Because with this tariff, it is clear that if the US imposes tariffs on border sectors, then substantial business losses will be incurred in India. While Indian businesses are worried about the US tariffs, India has even higher than 100% tariffs on multiple US products and sectors.
This can turn out to be an opportunity for India to reduce certain tariffs and open the door for easier trade between the two countries. Both countries have already been striving to achieve the $500 billion bilateral trade goal by 2030, whose first phase is about to be completed in the autumn of 2025.
Source: TheTimesofInida
______________________________________________________________________________________
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.