Recently, the president of the United States, Donald Trump, announced that the U.S. would impose a 25 percent tariff on imported cars, light trucks, and their parts. A key point to note is that this 25 percent tariff will be imposed on top of previous duties. Since India is one of the major exporters to the U.S., such a move from the U.S. government will have an impact on the Indian automobile industry. In this article, we explain what the 25 percent U.S. tariff means for the Indian car market and Indian car buyers.
What are Tariffs?
Tariffs are taxes imposed on foreign goods imported into a country, typically paid by the importer. There are two purposes behind imposing tariffs on imported goods. One is making the imported goods more expensive than the domestic goods, forcing domestic buyers to lean more towards domestic goods and, in turn, strengthen domestic industries. The other reason behind imposing tariffs on imported goods is revenue generation for the local government. For example, Apple iPhones imported into India have a 22 percent tariff imposed on them.
Impact on Luxury Cars
Following the tariff announcement by the U.S. government, automobile manufacturers across the globe are reevaluating their international trade. India is on the same line of discussion. Sources suggest that the Indian government is considering a substantial reduction in tariffs on imported luxury cars. Potentially, this move aims to smoothen trade negotiations with the United States, the United Kingdom, and the European Union. This means luxury cars from Mercedes-Benz, BMW, Porsche, and other such brands are likely to get cheaper. Moreover, since the United States, the United Kingdom, and the European Union have requested a reduction in auto tariffs, India would need to extend tariff deductions equally to all three major economic blocs.
Impact on Passenger Cars
As per the Global Trade Research Initiative (GTRI), the U.S. government’s 25 percent auto tariffs will have minimal impact on the Indian car market. The GTRI founder, Ajay Srivastava, has stated that India exported a modest $8.9 million worth of vehicles to the U.S. in 2024, which is just 0.13% of the nation’s net exports of $6.98 billion. The negligible export to the U.S. means the negligible impact of the U.S. government’s 25 percent auto tariffs on India’s thriving car export business. Meanwhile, the Society of Indian Automobile Manufacturers (SIAM) Director General, Rajesh Menon, stated, “We don’t expect any significant impact on the Indian Automobile industry since there are limited exports to the U.S., but we will continue to monitor the situation.” Overall, the Indian car market is expected to remain free of any significant impact from the U.S. auto tariffs. However, there is more to what is immediately apparent.
A Global Outlook of the Indian Automobile Industry
The U.S. government imposing high auto tariffs on imported cars and auto parts can present an opportunity for Indian manufacturers to increase their market share in the United States. While the U.S. government has imposed 25 percent tariffs on all imported cars and car parts, India has the competitive advantage of labour-intensive manufacturing and competitive India’s import tariff structures (ranging from zero to 7.5%).
Moreover, due to relatively more affordable labour and manufacturing costs, India will appeal as an economic manufacturing space to foreign manufacturers. For example, the largest EV maker in the world, BYD, is likely to set up its manufacturing plant in Telangana. Not only will this make BYD cars more accessible to Indians, but also create an ecosystem of component makers and thousands of jobs. The entry of BYD could also open the gates for more Chinese firms to set up facilities. Meanwhile, since Tesla is about to start its operations in India, a hot competition between Tesla electric cars and BYD electric cars can expedite the EV adoption and establishment of charging infrastructure in India.
Summary
As the U.S. government has imposed a 25 percent tariff on imported cars, light trucks, and their parts, there will be a significant impact on car markets across the globe. As far as the Indian automobile industry is concerned, cars priced above Rs 40 lakh can become cheaper. However, there is going to be little to no impact on passenger cars. At the same time, this can also present an opportunity for Indian manufacturers to increase their market share in the United States, and open gates for foreign car manufacturers to set up their manufacturing plants in India, thanks to more affordable labour and manufacturing costs in India.
