US Tariff Reduction Provides Major Export Opportunity for Indian Auto Components
The first phase of the India-US bilateral trade agreement has delivered substantial tariff relief for Indian automotive component manufacturers, marking a significant victory for the industry. The deal reduces import duties on Indian auto parts from the previous 50% to a range of 0-18%, creating new export opportunities in the world's second-largest automobile market.
Minister Announces Details of Tariff Reduction
India's Commerce and Industry Minister Piyush Goyal confirmed on Saturday that approximately half of India's auto parts exports to the United States will now be completely tariff-exempt. The remaining exports will face an 18% duty, representing a dramatic reduction from the 50% tariff imposed by former US President Donald Trump last year on all Indian items.
"For the Indian auto component industry, the commitment to preferential tariff rate quotas for automotive parts, removal of Section 232 tariffs on select inputs, and a pathway for further tariff rationalization under the proposed Bilateral Trade Agreement are indeed positive steps," stated Vikrampati Singhania, President of the Automotive Components Manufacturers Association of India (ACMA).
Singhania emphasized that these measures will enhance export competitiveness, deepen technology collaboration, and reinforce India's position as a trusted partner in resilient global automotive supply chains.
Export Figures and Competitive Landscape
Indian auto parts exports to the United States reached nearly $6.2 billion in FY25, showing growth from approximately $5.8 billion the previous year. According to ACMA data, exports declined slightly to $3.64 billion in the first half of financial year 2026, compared to $3.67 billion during the same period a year earlier.
The timing of this tariff relief is particularly significant as Indian auto exports face challenges in Europe's saturated markets. Meanwhile, competing economies including Vietnam, the Philippines, Indonesia, and China continue to face higher tariffs ranging from 19-35% in the US market.
"The reduction in tariffs to 18% from 50% is a win for the industry, as it could increase export volumes, at a time when competing economies have higher tariffs," explained Ashim Sharma, Senior Partner and Business Unit Head at Nomura Research Institute Solutions and Consulting.
Industry Challenges and Supply Chain Dynamics
Despite the tariff reduction, procurement costs for US importers remain approximately 16% higher than they were a year ago, when the US maintained a low 2.5% tariff before President Trump announced reciprocal tariffs in April 2025.
Industry representatives have noted that US customers had become hesitant to order parts due to the previously high duties, creating uncertainty around new contracts. However, existing supply chains have continued because of the stringent qualification and approval processes that original equipment manufacturers must follow when changing suppliers.
"We have seen that the tariff imposed by the US on much of the world, including India, has led to a lot of hesitation from companies in the US and the NAFTA region to source new projects from companies in India," said Sriram Vij, ACMA President-Designate, referring to the North American Free Trade Agreement region comprising the US, Canada, and Mexico.
Strategic Considerations and Global Value Chains
Several of India's largest auto parts companies, including Samvardhana Motherson and Sona Comstar, have already established manufacturing and assembly units in the United States and neighboring countries like Mexico. These facilities benefit from tariff-free access to the US market, which remains one of the world's largest automotive hubs alongside Germany, China, and India.
The strategy aligns with former President Trump's efforts to protect the US auto industry by promoting domestically manufactured vehicles and locally sourced components. In April 2025, following his 'Liberation Day' address announcing reciprocal tariffs, Trump issued a proclamation aimed at protecting the US automobile industry through increased tariffs on imported cars and spare parts.
This action responded to data showing that nearly half of vehicles sold in the US in 2024 were imported, with the US trade deficit in automobile parts reaching $93.5 billion that same year.
India's Global Value Chain Ambitions
India has recognized the limited presence of made-in-India products in global value chains within the auto parts sector. The Ministry of Heavy Industries is developing an incentive package to provide capital and operational support, along with research and development benefits, to strengthen the country's auto parts sector and increase India's share in global value chains.
The latest economic survey for FY26 emphasized the need for India to recalibrate its industrial approach, focusing on strategic resilience rather than attempting to become self-reliant in every sector. The survey, prepared by Chief Economic Advisor V. Anantha Nageswaran, recommended concentrating on building top-quality products in key areas of global value chains where India can maintain competitive advantages.
Vinay Piparsania, Founder of auto-focused consultancy MillenStrat Advisory & Research, noted that "with India and US finalizing a trade agreement, Indian products will have predictability in terms of pricing, which will help US customers make their decisions."
He further explained that many components, including castings, forgings, wiring harnesses, and electronics housings, face capacity constraints, require labor-intensive production, and involve higher costs in the United States, often necessitating additional environmental and compliance approvals.
The trade agreement provides Indian exporters with increased certainty, though the US has indicated it may reimpose punitive 25% tariffs if India continues importing Russian crude oil. Despite the remaining 18% tariff being higher than the previous 2.5% levy, industry experts emphasize that established supply chains are difficult to rebuild, and long-standing relationships between Indian companies and US customers provide stability even amid elevated costs.
