Tariff relief in US gives Indian auto parts a major export lift

The tariff relief in the US, the world’s second-largest auto market, comes at a time when Indian auto exports are struggling in Europe’s saturated markets.

India’s commerce and industry minister Piyush Goyal said on Saturday that around half of India’s auto parts exports will be tariff-exempt, while the remainder would see an 18% duty—significantly lower than the 50% tariff on all Indian items imposed by US President Donald Trump last year.

“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. These measures will lead to enhanced export competitiveness, deepen technology collaboration, and reinforce India’s role as a trusted partner in resilient global automotive supply chains,” Vikrampati Singhania, president of the Automotive Components Manufacturers Association of India (Acma), said on Saturday.

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, said Ashim Sharma, senior partner and business unit head, Nomura Research Institute (NRI) Solutions and Consulting.

Indian auto parts exports to the US were nearly $6.2 billion in FY25, up from about $5.8 billion the year before, according to Acma.

According to Acma, whose members make up about 90% of India’s $110 billion auto components industry, the deal signals a clear intent to strengthen bilateral manufacturing and supply-chain partnerships.

Competitive economies such as Vietnam, the Philippines, Indonesia, and China are facing higher tariffs in the 19-35% range, commerce minister Goyal said on Saturday.

Export softness persists

The tariff reduction was critical for Indian component makers, who reported that US customers had been hesitant to order parts due to high duties, a situation that risked worsening further.

“New contracts that are due are a little bit in limbo, whereas existing supply chains continue because a supplier has to go through qualification processes and stringent approval processes. It is not very easy for an original equipment manufacturer (OEM) to switch suppliers,” Acma’s Singhania said in a press conference last month.

“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,” Sriram Vij, Acma president-designate, said at the same conference.

NAFTA stands for North American Free Trade Agreement, and includes the US, Canada, and Mexico, which trade goods and services with reduced or zero tariffs under the pact.

In the first half of financial year 2026, auto part exports to the US declined slightly to $3.64 bn, as per Acma data, compared to $3.67 bn exports in the same period a year ago.

But, procurement bills for US importers will remain higher than they were a year ago, when the US had a low 2.5% tariff before president Trump announced reciprocal tariffs in April 2025.

Elevated costs

But, according to Sharma of Nomura Research Institute, the deal gives “seemingly some certainty” to India’s exporters, as the US has indicated that it will reimpose the punitive 25% tariff if India continues importing Russian crude oil.

Experts suggest that although US customers will pay higher bills, it is not easy to shift supplier base easily, as there are long-standing relationships between Indian companies and US customers, which are not easy to move away from.

“It is true that the 18% tariff is still higher than the 2.5% levy a year ago, but supply chains are difficult to build and rebuild,” said Sharma.

“Many components, namely castings, forgings, wiring harnesses, electronics housings are capacity-constrained, labour intensive, and high-cost in the US, and may also require higher environmental/compliance approvals,” Vinay Piparsania, founder at MillenStrat Advisory & Research, an auto-focused consultancy, said.

He added 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.

India’s GVC push

To be sure, some of India’s largest auto parts companies such as Samvardhana Motherson and Sona Comstar have manufacturing and assembly units in the US and in neighbouring countries such as Mexico, which are tariff-free, since the US market is one of the largest among other automotive hubs in the world.

The US, Germany, China, and India are some of the world’s key vehicle-making hubs, which form crucial markets for auto parts makers.

The strategy to make and assemble in the US is aligned with Trump’s efforts to protect the US auto industry by promoting US-made vehicles and locally-sourced parts.

US President Trump in April 2025, weeks after announcing reciprocal tariffs in his ‘Liberation Day’ address, announced a proclamation for protecting the US automobile industry by increasing tariffs on imported cars and spare parts. This happened because nearly half of the vehicles sold in the US in 2024 were imported, according to an April 2025 White House statement. The statement also noted that the US trade deficit in automobile parts reached $93.5 billion in 2024.

Meanwhile, India has noted the lack of made-in-India products in the auto parts sector in global value chains (GVCs). The ministry of heavy industries is working on an incentive package to provide capital and operational support, as well as benefits for research and development, for the country’s auto parts sector and increase India’s share in GVCs, Mint reported in August 2025.

The latest economic survey for FY26 noted that India needs to recalibrate its industrial approach and focus on strategic resilience instead of the goal of becoming self-reliant in each sector. For this, India needs to focus on building top-quality products in key areas of global value chains where it can be competitive, the survey prepared by chief economic advisor V. Anantha Nageswaran had said.