The tariff concession introduced by US President Donald Trump to encourage vehicle manufacturing in America might principally profit Canada and Mexico, leaving India and different nations at a relative drawback because of the home content material requirement introduced by the White Home Tuesday, an trade government instructed The Indian Specific.
The selective aid for the North American area assumes significance, because the US is the most important and fastest-growing auto part marketplace for Indian exporters. “The talks for a bilateral commerce settlement are ongoing, and we expect some aid, although the White Home announcement on auto tariff concessions largely advantages Canada and Mexico beneath the United States-Mexico-Canada Settlement (USMCA), and never India. Canada and Mexico are already main suppliers of components to the US,” the trade government stated.
Round a fifth of the Indian auto part sector’s income comes from exports, with 27 per cent of that directed to the US market alone, in keeping with Crisil Rankings.
What White Home order on auto tariffs says
To stop sudden disruption from the 25 per cent tariff on cars and components, the US Tuesday modified an earlier order by saying an offset quantity for US imports over the subsequent two years, together with decreased tariff charges if “home or USMCA content material” is utilized in manufacturing inside the US.
Citing nationwide safety issues, the White Home had final month stated that auto components would face 25 per cent tariffs from Could 3, 2025. “…it gives an offset to a portion of tariffs for vehicle components utilized in US-assembled automobiles, equal to three.75 per cent of the Producer’s Steered Retail Worth (MSRP) of a producer’s US manufacturing for the yr from 3 April 2025 to 30 April 2026, and a couple of.5 per cent for the yr from 1 Could 2026 to 30 April 2027,” a White Home assertion stated.
These percentages replicate the obligation payable when a 25 per cent tariff is utilized to fifteen per cent of the worth of a US-assembled automobile within the first yr, and to 10 per cent within the second yr, in keeping with the White Home.
“All different vehicle imports will stay topic to the 25 per cent tariff. For example, if a producer builds a automobile within the US with 85 per cent ‘US or USMCA content material’, the producer won’t owe tariffs on that automobile’s manufacturing within the first yr,” the White Home stated.
Story continues under this advert
Nevertheless, if a producer builds a automobile within the US with 50 per cent “US or USMCA content material” and 50 per cent imported elements, they might pay tariffs on solely 35 per cent of the imported portion within the first yr, the White Home added.
How US auto tariff revision will influence Indian producers
Crisil Rankings had stated final month that the US tariffs would dent the working margins of main auto components producers by 125–150 foundation factors because of the Trump administration’s transfer to impose a 25 per cent tariff on key elements, together with engines, transmissions, powertrains, and electrical components, from Could 2025.
“…would compress the working margins of Indian part manufacturer-exporters by 125–150 foundation factors from the present 12–12.5 per cent vary, assuming full absorption of the tariffs,” Crisil estimated.
Nevertheless, choose automotive part producers with US-based amenities may even see offsetting positive aspects from improved capability utilisation. The US additionally plans to broaden tariffs to cowl extra elements if vital, although the extra influence is predicted to be restricted, the company stated.
Story continues under this advert
India’s auto part exports — together with drive transmission, steering, and engine elements — reached $21.2 billion in FY24, reflecting 5.5 per cent progress. This was largely pushed by strong demand from North America and Europe, which every accounted for practically 32 per cent. Different key markets embody Asia and West Asia. Nevertheless, general progress remained flat in comparison with the earlier yr.
A question emailed to the Commerce and Trade Ministry remained unanswered until the time of publication.
Auto part exports to the US alone touched round $7 billion, official information reveals. Nevertheless, the importance of the US market lies within the scale of the chance. In 2024, People bought roughly 16 million vehicles, SUVs, and lightweight vehicles — half of which had been imports. “Of the opposite 8 million automobiles assembled within the US, the common home content material is conservatively estimated at solely 50 per cent, and is probably going nearer to 40 per cent. Thus, of the 16 million vehicles purchased by People, solely 25 per cent of the automobile content material might be categorised as ‘Made in America’. The USA’ commerce deficit in vehicle components reached $93.5 billion in 2024,” a White Home truth sheet said.