Indian Sectors Poised to Benefit in the US Market Amid High China Tariffs: A Report

SUMMARY

The United States has implemented 125% tariffs on imports from China, providing an opportunity for Indian products to gain a competitive edge in the American market.

During a 90-day suspension period, Indian exports will incur only a 10% duty, providing temporary relief.

The U.S. has implemented a tariff regime targeting imports from multiple countries, with China facing the highest duties at 125%, while India faces a relatively lower 10% flat tariff (down from a proposed 26-27% reciprocal tariff). This differential creates a competitive advantage for Indian exports, particularly in sectors where India competes directly with China. The 90-day suspension of country-specific tariffs offers a critical window for India to strengthen its export ecosystem. This report analyses the sectors likely to benefit, evaluates their potential, and outlines actionable strategies to leverage this trade shift.

Sectors Poised to Benefit

1. Textiles and Apparel

Market Opportunity:

• The U.S. imported $9.6 billion in textiles and apparel from India in FY 2023-24, accounting for 28% of India’s total textile exports.

• High tariffs on China (125%) and Bangladesh (37%) make Indian textiles more price-competitive in the U.S. market.

• India’s strengths include low-cost production, a skilled workforce, and established players like Vardhman Textiles, Gokaldas Exports, and Arvind.

Potential Impact:

• Indian textile manufacturers can capture market share vacated by Chinese and Bangladeshi exporters, particularly in garments, fabrics, and carpets.

• Relocation of production from China and Thailand to India is feasible, with companies like Vardhman investing in capacity expansion (e.g., a 12% increase in yarn capacity by FY 2024).

Challenges:

• A potential slowdown in U.S. consumption due to higher prices could shrink overall demand.

• India’s garment sector has lagged behind Vietnam and Bangladesh due to insufficient investment in scale and modernization.

2. Pharmaceuticals

Market Opportunity:

• India exported $12.2 billion in pharmaceuticals to the U.S. in 2024, representing 10% of its total exports to the market.

• The sector enjoys temporary exemption from new tariffs, and India’s lower 10% duty compared to China’s 125% enhances its competitiveness.

• India’s dominance in generic drugs (e.g., Aurobindo Pharma, Lupin, Cipla) aligns with U.S. demand for cost-effective healthcare solutions.

Potential Impact:

• U.S. intermediaries may shift sourcing from Chinese pharmaceutical suppliers to Indian firms, given India’s FDA-approved facilities and established supply chains.

• The sector’s resilience is bolstered by its low exposure to tariff-driven disruptions, as noted by analysts like Bernstein and CLSA.

Challenges:

• Non-tariff barriers, such as stringent U.S. FDA regulations, pose hurdles (approval costs range from $9,280 to $540,000).

• Potential future tariffs on pharmaceuticals could threaten India’s position if the U.S. targets generic drug imports.

3. Electronics

Market Opportunity:

• India’s electronics exports to the U.S. reached $12.6 billion in 2024, comprising 31% of its total electronics exports.

• China accounts for 83% of U.S. electronics imports, facing a 125% tariff, while India’s 10% duty offers a cost advantage.

• India’s growing mobile phone manufacturing base (e.g., Foxconn’s iPhone assembly) positions it to attract further investment.

Potential Impact:

• India can expand in lower-end chip manufacturing, packaging, and testing, especially as Taiwan faces 32% tariffs.

• Companies like Apple aim to increase India’s share of iPhone production to 25% in coming years, up from 15%.

Challenges:

• High dependence on imported components from China, South Korea, and Taiwan (all facing high tariffs) could raise costs for Indian manufacturers.

• Logistical bottlenecks and inadequate infrastructure limit scalability for small exporters.

  
  

4. Chemicals

Market Opportunity:

• India’s chemical exports to the U.S. are part of its broader industrial goods portfolio, benefiting from tariff arbitrage versus China.

• The sector’s competitiveness stems from established players and India’s push for self-reliance in chemical production.

Potential Impact:

• Indian chemical exporters can fill gaps left by Chinese suppliers, particularly in specialty chemicals and intermediates.

• The “Make in India” initiative supports domestic value addition, enhancing export potential.

Challenges:

• A tariff differential of 8.6% between India and the U.S. could still impact price-sensitive segments.

• Supply chain disruptions from China could raise input costs for Indian manufacturers.

5. Agriculture

Market Opportunity:

• Indian agricultural exports to the U.S., including rice, spices, tea, and processed seafood ($2.58 billion in 2024), face a 10% tariff compared to China’s 125%.

• U.S. demand for alternatives to Chinese agricultural products (e.g., soybeans) presents an opening for India.

Potential Impact:

• India can increase exports of high-value agricultural goods, leveraging its diverse agro-climatic zones and competitive pricing.

• Seafood exports, particularly shrimp (40% of India’s shrimp exports go to the U.S.), could gain if competitors like Ecuador and Indonesia face similar tariffs.

Challenges:

• A 27.83% tariff differential on seafood could erode competitiveness unless offset by supply chain efficiencies.

• Dairy exports ($181.49 million) face a 38.23% differential, limiting growth in products like ghee and butter.

Strategic Recommendations

1.Enhance Infrastructure and Logistics:

• Invest in port modernization, freight corridors, and trade facilitation to reduce logistical costs and improve export efficiency.

• Streamline customs processes to expedite shipments, as recommended by the Global Trade Research Initiative (GTRI).

2.Strengthen Policy Support:

• Reintroduce the interest equalization scheme to provide small firms with access to affordable working capital.

• Expand production-linked incentives (PLI) to textiles, electronics, and chemicals to boost scalability and domestic value addition.

3.Diversify Supply Chains:

• Reduce reliance on Chinese imports for electronics and chemical inputs by fostering local manufacturing and exploring alternative suppliers (e.g., ASEAN countries).

• Negotiate trade agreements with the U.S. to secure preferential terms and minimize future tariff risks.

4.Engage U.S. Buyers Proactively:

• Organize trade delegations and expos to showcase Indian capabilities in textiles, pharmaceuticals, and electronics.

• Leverage India’s reputation for quality and compliance (e.g., USFDA approvals) to build trust with U.S. importers.

5.Address Non-Tariff Barriers:

• Collaborate with U.S. regulators to align Indian standards (e.g., Bureau of Indian Standards) with international norms, reducing compliance costs.

• Provide subsidies or support for exporters navigating U.S. FDA and other regulatory hurdles.

Risks and Considerations

• Global Slowdown: Tariffs could trigger U.S. inflation or reduced consumer spending, shrinking demand for Indian exports.

• Retaliatory Measures: Other countries may impose counter-tariffs, affecting India’s broader export markets.

• Domestic Constraints: Without rapid reforms, India risks losing ground to competitors like Malaysia and Indonesia, which are better positioned in some sectors.

• Currency Volatility: A weaker rupee (e.g., falling from 85 to 108 per USD) could offset tariff advantages by raising import costs for Indian manufacturers.

Conclusion

The U.S.’s high tariffs on China provide a unique opportunity for India to strengthen its position in the U.S. market. Textiles, pharmaceuticals, electronics, chemicals, and agriculture stand to gain significantly due to India’s competitive pricing, established supply chains, and lower tariffs compared to China. However, realizing these benefits requires proactive measures—improving infrastructure, scaling production, and aligning with U.S. standards. By acting swiftly within the 90-day tariff suspension window, India can position itself as a credible alternative to China, driving export growth and attracting global investment.