Tariff Impact of US President Donald Trump’s New Tariffs

• Divya Bhushan, Tax Partner, EY India

  In a significant relief for India’s pharmaceutical industry, the US has exempted pharmaceuticals—one of India’s key export items—from the new reciprocal tariff regulations. The exemption for pharmaceuticals is a welcome relief, reaffirming the importance of affordable medicines in global healthcare. This decision not only protects our industry but also underscores the critical role that Indian drug makers can continue to play in ensuring access to essential medications worldwide, being suppliers of quality and cost effective medicines.

• BY Anuj Sethi, Senior Director, Crisil Ratings on US tariff impact on pharmaceuticals

No tariffs imposed by US Administration on pharmaceuticals

The US Administration has exempted pharmaceuticals from reciprocal tariffs, given its focus on enhancing availability of affordable medical care of the US citizens. To be sure, India exported ~ USD 8 billion of pharma products to USA in fiscal 2024, its largest export destination, and supplies ~40% of generics consumed in the USA and this move by the US Administration will help sustain exports. India has more than 650 manufacturing facilities approved by the US Food and Drugs Administration (USFDA), the second-highest number outside the US. They account for a quarter of all such certified facilities outside the US.

The possibility of tariffs being imposed by the US Administration on pharmaceuticals at a later stage cannot, however, be ruled out. That said, several potentially mitigating factors – ongoing drug shortages in the US, the higher cost of domestic pharmaceutical production in USA, and declining profitability of US pharma firms – are expected to be taken into consideration before any such imposition.

• GJEPC statement: Impact of Reciprocal Tariffs announced by U.S. President Mr. Donald Trump on Indian Gem & Jewellery Trade: Indian gem & jewellery industry, like the rest of the world, is trying to analyse the evolving global economic landscape due to the reciprocal tariff announcement by USA on countries worldwide. The Gem & Jewellery Export Promotion Council (GJEPC) though understands the U.S. administration’s intent to address trade and tariff imbalances through reciprocal tariffs, however urges the U.S. to uphold the spirit of the longstanding trade partnership between India and the United States, which has been built on mutual respect and shared economic interests.

The Trump administration’s announcement of a 26% reciprocal tariff on Indian gem and jewellery exports to the US would be a significant burden on Indian exporters and American consumers alike. While the tariff’s application to competing nations presents both challenges and opportunities, it is likely to significantly impact India’s diamond and jewellery sector—a cornerstone of its exports to the US. In the long term, we foresee a reshaping global supply chains. In short run, we anticipate challenges in sustaining India’s current export volume of USD 10 billion to the US market. We urge the Government of India to progress the Bilateral Trade Agreement between India and the US, as it would be crucial in navigating the tariff issues and securing long term interest of the sector.

Additionally, GJEPC is actively engaging with stakeholders to address these risks and advocate for balanced solutions that ensure continued access to the U.S. market.

• Saurabh Agarwal, Tax partner, EY India

India’s pharmaceutical sector enjoys protection from reciprocal tariffs, keeping it insulated from tariff increase. Additionally, Indian goods face significantly lower tariffs in the US compared to those from China and Vietnam (additional difference arising on account of reciprocal tariffs released being 7% and 19% less, respectively), creating possibility of  growth potential for India’s telecommunication and textile manufacturing sectors. While 18% of India’s total exports are destined for the US, anticipated supply chain shifts are expected to open new export opportunities. Although short-term export fluctuations may occur, the mid-to-long term outlook suggests possible export growth for India (contingent on final international trade negotiations with the US). To fully leverage this potential, the Indian government should expand existing Production Linked Incentive (PLI) schemes in these sectors to cover a wider range of products and extend their duration by two years, thereby bolstering domestic industries’ investment and global competitiveness.

•  Mr. Saurav Ghosh, Co – Founder at Jiraaf

“Asian countries have a higher trade deficit with the US along with EU, so it is natural that they are higher on the list. A 54% tariff on China, 46% on Vietnam, 37% on Thailand and 25% on Korea lead the way. US has a $120bn trade deficit with the Vietnam alone. The example cited by President Trump of Toyota importing more cars to US reducing the opportunity for domestic players like GM and Ford exemplifies the thinking behind the move. Reduction of trade deficit being the driving thought, President trump said that non tariff barriers including domestic VAT and unfair currency rates have played a part in determining reciprocal tariff. The raising of tariff is ultimately the old trick in the book to bridge labour cost gaps. It is a protectionist attempt to bring manufacturing back to US which remains unlikely in the short term. Asian countries have maintained lower labour cost and built significant capabilities including infrastructure (Especially China) for manufacturing along with maintaining a favourable currency. They continue to be the manufacturing hub of the world.  It is hence not surprizing to see that President Trump taking a harsher line on Asian countries.”

• Mr. Vineet Agrawal, Co – Founder at Jiraaf

“The reciprocal tariff is higher than expected, however the silver lining for India is that it remains on the lower end when compared with China, Vietnam, Bangladesh and Thailand. As President Trump attempts to bring manufacturing to the US, he has ignited a high stakes gamble which has raised the possibility of high inflation in the short term followed by a recession. As early reactions from Australia, South Korea and China suggest, there would be measures that impacted countries would take to reverse the impact of globalization and impact global trade flows. It is also worrying that there might be more sector specific tariff that might be announced later. While manufacturing shift remains improbable in the short term due to differential in labour cost, countries will try to re-negotiate tariffs with trade agreements to establish a plausible way forward.

Regards to tariff on India, it is good to note that currently Pharma and semiconductor remains exempt. However, the net GDP impact would be c. 0.4%-0.45% of GDP. It would be critical to understand impact on key commodities like oil and gold in an uncertain economic environment which could fuel domestic inflation. From a markets standpoint, the higher tariff on other countries could also possibly lead to some positive flows in India if the domestic indicators turn stronger.”